The bears might take control

MACRO TECHNICALS

While the uptrend in the early part of last week showed promise, subsequent dips meant that the markets have run out of steam.

The market gained through four lacklustre sessions before crashing late on Friday afternoon. The Nifty closed at 3075.85 points, down by 1.67 per cent, after hitting an intra-day high of 3200 points.

The Sensex lost 0.94 per cent to close at 10509.53 points after hitting intra-days highs of 10940. The Defty was down 1.82 per cent as the rupee lost some ground against the dollar.

Breadth signals were pretty negative. Advances were far outnumbered by declines and volumes were low through out the week. The BSE500 lost 1.07 per cent. Smaller stocks did even worse.

Outlook
There's major resistance between 3200-3225. The short-term trend is negative but the market has been in an uptrend since mid-June.

There's some support at the current level of 3075 and the next reliable support is at 3000 for Nifty. We would expect the market to turn around from 3000 and test 3200-3225 again.

Rationale
This intermediate uptrend is either the first reaction in a new bear market or a renewal of the bullish trend. It's not completely clear yet.

The short-term trend is weak but that could just mean 1-3 sessions of lower prices followed by another climb. If the intermediate trend stays up, (likely since it's been in force for only three weeks), the market should climb back past 3200.

But there isn't enough volume to suggest that it will pass the resistance at 3225 with any degree of confidence. The support at 3000 and the resistance at 3225 are the key benchmarks.

Counter-view
If this is a new bear market, the intermediate trend could have already terminated. In that case, the support at 3000 will probably not hold. The low volumes and poor advance-decline ratios actually make this outcome quite likely.

Bulls & bears
Most stocks showed a bearish engulfing pattern on Friday""the high-low range was greater than it had been on Thursday and the stocks closed down.

Engulfing patterns are usually reliable indicators of short-term movements. PSUs, energy stocks, banks and cement shares were worst-affected by the bearish sentiment.

Among the worst-hit were ACC, Bhel, Bharat Electronics, Bharat Forge, BPCL, Gujarat Ambuja, Hero Honda, HPCL, IPCL, Infosys, Reliance, SCI, SBI, TCS, Tisco and Wipro.

With so many heavyweights apparently poised to lose ground, the market is almost bound to travel down in the early part of the week.

Very few stocks showed any signs of bucking the downtrend. NTPC was one that could move up, another was Bharti Airtel and ICICI and ITC could also hold their ground.

MICRO TECHNICALS

ACC
Current Price: 793.35
Target Price: 770

The stock has lost ground on higher volumes and a bearish engulfing pattern. It has a downside target of 770 with some support at 782.

Keep a stop at 801 and go short. Cover partially at 782. ACC is likely to bounce fairly strongly from 770-levels and move up to around 800 once again. So, you could close the trade and go long at 770 levels.

Bharti Airtel
Current Price: 371
Target Price: 378

The stock has an interesting pattern with higher volumes and the open and close at the same level despite a wide daily range. It's likely to move up and hit resistance at about 378. Keep a stop at 365 and go long. Cover at 378.

NTPC
Current Price: 115.5
Target Price:

NTPC appears to be close to completing a bullish breakout despite the poor market sentiment. If it closes above 118, it will complete the breakout and have a minimum upside target of 128. Keep a stop at 113 and go long.

Reliance Industries
Current Price: 1031
Target Price: 1010, 985

The stock has fallen sharply with some volume expansion. It has a minimum downside target of 1010 and if support at this level is broken, the stock could fall to about 985 levels.

Keep a stop at 1065 and go short. Partially cover at 1010. Fully cover the position at 985.

Tata Steel
Current Price: 522.9
Target Price: 495

The stock made a downside break on Friday and it has a minimum downside target of 505 and a likely downside till 495. Keep a stop at 535 and go short. Partially cover at 505 and cover the entire position below 500.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)