If the resistance at 3,700 is cleared, the next target could be 3,850.
The market continued to soar last week. The Nifty tested resistance at above 3,700 points before settling down to close at 3,620 for a gain of 4.22 per cent.
The Sensex was up 4.15 per cent to close at 11,876 points. The Defty was up 5.7 per cent as the rupee strengthened sharply. FIIs remained net buyers though domestic institutions sold for the third week in succession. Breadth was decent with advances outnumbering declines comfortably. Volumes were up. Most sector indices gained and small-caps and mid-caps outperformed. The BSE 500 was up 5 per cent while Midcaps 50 gained 8.4 per cent.
Outlook: The uptrend is likely to hit a resistance at 3,700. If that resistance is cleared, the next target could be 3,850. A short-term reaction would find support at 3,575 with strong secondary support at the exponential 200 day moving average level of 3,450-3,500. An intermediate trend reversal would be signalled by a pullback below the 200 EMA.
Rationale: Most technical indicators are looking quite positive. The important 200 DMA has been surpassed, which suggests that the long-term bear market could be ending. The breadth and volume indicators are good. The market is overbought but that is normal given a trend that has been up since early March. Politics could be the trigger for a trend reversal.
Counter-view: If this is the first up-wave in a new bull market, it could continue for several more weeks. In that case, the upside from here may be considerable. However if this is a bull-trap in a continuing bear market, the pullback could be till the 2,800 mark.
Also Read
Bulls and Bears: As mentioned above, it was a pretty good week across most sectors. Mid-caps outperformed larger and smaller stocks and banks outperformed most other sectors. The Bank Nifty was up over 5 per cent with private sector banks like ICICI Bank and Axis outperforming the PSU banks.
Real estate also did well with HDIL being the best performer. The CNX IT underperformed as the rupee jumped. However, it did register net gains with Educomp, the only biggie to suffer serious losses.
Among other industries, shipbuilding stocks including ABG Shipyard and Bharati made large gains. GE Shipping also did well. Sugar stocks like Shree Renuka Sugars, Bajaj Hindusthan and Balrampur Chini also zoomed. Metals were another strong group with steel, copper and aluminium stocks looking strong.
MICRO TECHNICALS
Larsen & Toubro
Current Price: Rs 991
Target Price: Rs 950
Volumes have fallen even though the price line has traveled up. There's heavy resistance from current levels till around Rs 1,010 and the upmove should reverse on profit-booking. There is a downside till around Rs 950-960. Keep a stop at Rs 1,000 and short. Cover at Rs 960.
Bharti Shipyard
Current Price: Rs 107
Target Price: Rs 120
The stock has climbed sharply on the back of a sharp volume increase. Its target could be between Rs 115 and Rs 120. Keep a stop at Rs 103 and go long. Book partial profits at Rs 115 and clear the position above Rs 120.
Sterlite Industries
Current Price: Rs 490
Target Price: Rs 550
The stock jumped on strong volumes, clearing a key resistance at Rs 480. It has reatracted from resistance at Rs 525-530. It's likely to find support at current levels or just below and the target would be around Rs 550. Keep a stop at Rs 480 and go long. Start booking profits above Rs 540.
Shree Renuka Sugars
Current Price: Rs 113.85
Target Price: Rs 120
The stock has broken out past Rs 110 on huge volumes. It has a minimum upside till Rs 120 and a projected target of Rs 130. Keep a stop at Rs 110 and go long. Book 50 per cent profits at Rs 120 and hold half the position with a stop loss at Rs 117 and a target of Rs 130.
Reliance Communications
Current Price: Rs 230
Target Price: Rs 205
The stock has repeatedly reacted from resistance at the Rs 240-250 level. It has also seen a drop in volume. This multiple top formation has bearish implications and could mean a downside till around the Rs 205 level. Keep a stop at Rs 237 and go short. Cover below Rs 210.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)