<b>Week Ahead in Mkts: </b>Expect bouts of volatility

MACRO TECHNICALS

Markets could be vulnerable to small triggers at record levels, when there is no pricing history.

The market surged to new highs for the second week in succession. The Nifty closed at 4504.55 up by 2.73 per cent while the Sensex closed at15,272 for a weekly gain of 2.06 per cent. The Nifty Junior was up by a disproportionate 4.16 per cent. The bull run was supported by strong buying from both domestic as well as foreign institutions.

Volumes improved from low levels on Monday to excellent levels by Friday. The ratio of advances to declines was positive. The BSE 500 was up 2.56 per cent and the Bank Nifty was ahead by 2.78 per cent. The Defty rose 2.66 per cent as the rupee dipped slightly.

Outlook: This uptrend looks as if it could continue. We can project a target of about 4575 for the Nifty but this is extremely imprecise for a variety of reasons. Expect high levels of intra-day volatility.

Rationale: The breakout has been supported by excellent volume expansion and good breadth. The market is at all-time highs. The uptrend has been in force for five weeks and intermediate trends can stay in existence for anywhere upto 12 weeks.

However, there will be unpredictable bouts of nervousness and profit-taking that will cause volatility. It's difficult to make projections when there's no price history. The nearest reliable support appears to be between 4425-4450.

Counter-view: At record levels, markets can be especially vulnerable to small triggers. We're entering results season. If Q1 FY08 is disappointing, there could be a big sell-off. If the support at 4425 breaks, the market will ease down to between 4350-4380.

Bulls & bears: Most of the sector attention was on IT/ITES which is struggling to cope with a strong rupee. Bellwether Infosys delivered results and guidance in line with low market expectations and a pullback in the stock price also triggered a drop of 1 per cent in the CNX IT. TCS is going through major gyrations and other IT stocks are looking bearish.

However the news was better in most other industries. Assorted banks such as HDFC Bank, Oriental Bank of Commerce, Bank of India, Corporation Bank continued to rise and pulled up the Bank Nifty by 2.78 per cent.

Metal stocks such as Tata Steel, Sail, and also non-ferrous metals such as Hindalco and Sterlite made strong comebacks. Apart from these there was buying in ACC, BHEL, Grasim, Jaiprakash Associates, Mahindra & Mahindra, Reliance Industries, Reliance Energy, Siemens, Sun Pharma, Tata Motors etc. GMR Infrastructure went through some sharp profit-booking on Friday.

MICRO TECHNICALS

Mahindra & Mahindra
Current Price: 825.55
Target Price: 860

There was a breakout on the last two sessions with the stock clearing an important resistance at 801. The target projection is about 850-860. Keep a stop at 811 and go long. Book some profits above 840.

ACC
Current Price: 1103
Target Price: 1150

The stock continues to advance and it could soon test its all time highs (1195). There is a target projection till around the 1150 level. While the highs may be tested on an intra-day basis, the volumes are insufficient to guarantee that the stock will be able to close above 1195. Keep a stop at 1085 and go long. Book some profits above 1145.

Reliance Energy
Current Price: 676
Target Price: 715

The stock made an important breakout when it cleared 655 on high volumes last week. The long-term formation now looks promising. The target would be about 715 and there's a possibility that REL could move till about 730 before it runs into a big resistance.  Keep a stop at 665 and go long.

SAIL
Current Price: 159.55
Target Price: NA

A dramatic four-session breakout has pulled the stock from 134 to current levels. There was very strong volume action on Friday as it broke an important resistance at 148. The target would be about 170. Keep a stop at 149 and go long.

TCS
Current Price: 1136
Target Price: NA

The expectation for TCS and other IT majors is bearish. However, with results due on Monday, the stock could gyrate through a large daily range of 1100-1250. Traders can hope to exploit this on intra-day basis by going long if the stock is below 1125 and short if it's above 1200. Keep tight stops in either direction.

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