There is scope for upside breakout

MACRO TECHNICALS

The market breadth remains positive while momentum indicators are giving bullish signals.

The market traded within a very small range throughout the week. The Sensex closed at 6451.54 points with a nominal gain of 0.99 per cent. The Nifty was up 0.55 per cent, closing at 1988.3 points. The Defty was up 0.66 per cent as the rupee continued its rise.

Breadth signals were by and large, positive. Advances comfortably outnumbered declines and the BSE 500 went up 1.12 per cent. Volumes were flat. The market put-call ratio was as high as 0.85, which is clearly oversold.

Outlook: It is extremely difficult to predict the direction of breakout from a narrow trading range like this week. However, the indicators suggest an upside breakout is much more likely than a fall. If the market rises above resistance at Nifty 2000 (Sensex 6500) and closes above that market, it is likely to move up till the 2050 (Sensex 6650).

Rationale: The put-call ratio is clearly oversold and the market breadth is showing a positive trend. Momentum indicators like the RSI and RoC were giving bullish signals. All this adds up to a greater likelihood of an upmove rather than down.

Counterview: The chart-pattern could be interpreted as a double-top, which is bearish. The market has failed to cross the resistance at 2000 Nifty despite several attempts. If the market moves down and closes below support at 1950, the downside target will be 1900.

Bulls and bears: The pattern through the week involved a strong trend in mid-caps and smaller stocks coupled to isolated bursts of enthusiasm in the pivotals.

The Group A stocks that looked really interesting included ACC, Bausch & Lomb, Cipla, Dr Reddy's, East India Hotels, Escorts, Finolex, GNFC, HDFC, ICI, Kotak Mahindra, Max India, Ranbaxy, Rolta, Saw Pipes, Sterlite Opticals, Titan and Zee. Apart from the technical rally in big pharma stocks, there was no obvious sector focus.

MICRO TECHNICALS

ACC
Current price: 391.15
Target price: 410

The stock closed very near an all-time (post-split) high. The chart pattern suggest that the target would be around 410. The volume movements have been satisfactory rather than good so, don't expect this target to be exceeded. Keep a stop at 380.

MAX INDIA
Current price: 543
Target price: 600

If the stock closes above 550, it will complete a bullish pattern with a probable target of 600-plus in the short run. In the long-term, the chart pattern suggests that the stock might have a clear run till 630. Either wait for a close above 500 or go long with a stop at 530.

ROLTA
Current price: 103
Target price: 115

There was a huge surge in prices, backed by a massive spurt in volumes. This pattern is characteristic of a bulk deal. Nevertheless, the stock has completed a bullish chart pattern with a volume expansion and that is fairly classic. The immediate target should be about 115. Keep a stop at 90 and go long.

SAW PIPES
Current price: 336
Target price: 350

The stock has moved up on strong volumes. It made a breakout on Friday past a resistance at approximately 320. It has the strength to move till around the 350 level. Keep a stop at 320, an erstwhile resistance which ought to become a support now that it has been penetrated.

TITAN INDUSTRIES
Current price: 279. 65
Target price: 305

The stock has been bullish since June 2004, when it was trading at about 100. It has just moved up to a new range on a strong volume expansion. It should have a target of about 300-305. Keep a stop at 270 and go long.

Rectangle

CLASSROOM

Rectangle is made up of a number of sideways price fluctuations within a trading range, which can be cordoned off, on both sides (that is, upper side and the down side), by horizontal lines.

At times there is a pattern where the upper and the lower boundary lines are parallel but slightly or rather marginally up or down sloping but as long as the slant is not too severe, it may be treated as a rectangle.

Despite this there is a tendency towards symmetry while a mini rectangle, which is a slightly shorter, and curtailed version could be classified as a 'square'. At times a symmetrical triangle could turn into a rectangle and the rectangle could turn into a symmetrical triangle, as the analysis of intra-pattern characteristics is quite similar.

Volume can be expected to gradually decline as the rectangle extends. False moves are relatively less in the case of a rectangle and pre-mature breakouts are slightly more common especially when compared to triangles.

A clear distinction needs to be made in the case of false moves where the trend could actually move in the opposite direction while in the case of premature moves the trend still moves in the same direction as earlier.

The rectangle is more of a consolidation pattern rather than a reversal pattern and rectangles are also seen more at bottoms than at tops. The difference between the first two price reversals is added or subtracted to or from the point of breakout, which becomes a minimum measuring criteria in terms of an expected price target for the pattern.

This is used on either side whether it is an upward breakout or a downward breakout as the case maybe. Following is the price chart of Spice Island Apparels which has shown a case of a clear rectangle.