Bearish sentiments could continue

MACRO TECHNICALS

The market is likely to test resistance between Nifty 2950 and 3100.

A sharp recovery suggests that the downtrend may be easing off. The Sensex recovered 0.75 per cent closing at 9884.51 points after hitting a low of 8799.

The Nifty was up a corresponding 0.84 per cent at 2890 points after bottoming at 2595. The Defty was up 0.92 per cent. Volumes remained low, except on Friday when there was a spurt.

The expansion in volumes and the price recovery were both confined to big stocks "� the BSE 500 actually lost a little ground over the week.

Declines outnumbered advances week on week and the weak breadth signals suggested that it may be too early to celebrate despite the record rise on Thursday.

Outlook
This feels like a bullish correction inside a bearish intermediate trend, but it could continue for a couple of more sessions. The market will test resistance between Nifty 2950 and 3100. If it does manage to close above 3150, the long-term prognosis would be more optimistic.

Rationale
There was very poor breadth and low volume on the bounce despite the fact that most large caps were in an uptrend. This pattern makes it technically unlikely that this move is sustainable.

The move will mostly likely peter out around 3100. That's fine so long as the market doesn't dip below 2595 on the next downmove. If the next bottom is higher than 2595, this will establish a pattern of higher lows and signal that the intermediate trend has eased.

If the market does climb above 3150 on this upmove, it also will signal that the intermediate downtrend, which started on May 12, is over.

Counter-view:
The strength of the intermediate downtrend suggests that it was the first wave of a new long-term bear market. In that case, it is likely to last longer than just five weeks and move down to lows below the current bottom at 2595.

Bulls and bears:
Restrict the trading focus within the derivatives stock group or, at most, within the top 200 stocks or so. There is a dangerous absence of liquidity in smaller stocks. Volatility across the market is likely to stay very high until settlement at least.

Among big stocks too, only a few look promising. The short list of stocks that could outperform the market during the current uptrend include Bajaj Auto, Bharti Airtel, Bharat Forge, HDFC Bank, L&T, Satyam, Sterlite TCS and Tata Steel.

There is some speculative activity apparent in Reliance Communications, and this could also pay off for the nimble trader.

MICRO TECHNICALS

Bajaj Auto
Current Price: 2648.6
Target price:

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The stock has risen more sharply than the market and has generated excellent volumes. It has decent support at 2600 and a potential upside till the 2850 level. Keep a stop at 2600 and go long. If it falls below 2600, go short because the next support is at 2500.

HDFC Bank
Current Price: 734.5
Target price: 795

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The stock has developed strong volumes as it moved up. It faces resistance at 745, but that is likely to be broken with a potential target of 795. Keep a stop at 710 and go long. It may also be worth accumulating with a two-month perspective. There's a long-term target of 900.

Larsen & Toubro
Current Price: 2097.35
Target price: 2250

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Strong volumes back the turnaround in price. There's a target of 2250 on the upside and L&T could actually move further till the 2400 level. Keep a stop at 2050 and go long.

Satyam
Current Price: 667
Target price: 720

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The stock has spiked vertically in the past two sessions and done so on expanding volumes. It has a target of about 720. Keep a stop at 625 and go long. If it does close above 720, it's likely to hit 745 very quickly.

Tata Steel
Current Price: 460
Target price: 530

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The stock is likely to hit resistance at about 480, cross that and bounce till around the 530 level before it halts this move. On the downside, there's support at 450 and then at 420. Keep a stop at 450 and go long. Increase the position once Tata Steel closes above 480.

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