Brace for short-term correction.
The market continued to find new legs as it made net gains on strong volumes. The Nifty rose to new 2009 highs and closed at 5,142 points for week-on-week gains of 3.98 per cent. The Sensex behaved similarly, rising to 4.08 per cent to close 17,322 points. The Defty jumped 4.75 per cent as the rupee shot up.
Volumes were good all week and extraordinarily high on Friday. (This analysis is being written pre-Diwali session, where trading is usually token). Advances outnumbered declines and a large number of stocks were heavily traded. FIIs remained big net buyers while domestic institutions sold through most of the week. The BSE 500 rose 4.26 per cent while the Nifty Junior rose 6.4 per cent.
Outlook: The market reconfirmed its bullish status and the new upside targets would be in the range of Nifty 5,300. However, there could be another short-term correction next week pulling prices back till around the 4,950-5,000 level. Positive FII attitude remains a critical driver.
Rationale: The sequence of higher highs confirms that both the bullish long-term and bullish intermediate trends remain intact. However, the intermediate trend is now 13-weeks old and could reverse anytime. The market is overbought in the short-term. A fall below 4,900 would signal intermediate trend reversal with a target of 4,750.
Counter-view: High volumes and a series of new 2009 highs in pivotal stocks implies the market could continue to head North for an un-definable time. Balanced against that, this last burst of trading may have been triggered by traders exiting positions. Normally Indian operators ease off around Diwali and domestic institutions are also net-sellers at the moment. Hence, the FII attitude is vital to market direction – if they sell heavily, there will be no counter-parties at current prices.
Bulls & bears: A large number of pivotal stocks hit new 2009 highs last weeks and most were backed by strong volume expansions. Metals, for example, made a comeback with Sterlite, Sesa Goa both doing very well. Banks as a sector jumped over nine per cent with leaders like SBI and ICICI Bank both hitting new highs. Real estate also bounced up. Outside these sectors, there were scattered winners such as PTC, GVKPIL, Cairn, etc. This sort of pattern suggests further gains but it also sets up a tempting scenario for profit-booking and almost by definition, the market is overbought, with many individual stocks being over-extended and far ahead of reliable supports. Use trailing stop-losses to lock in profits, if there is a sharp reversal.
MICRO TECHNICALS
Bharti Airtel
Current Price: Rs 326
Target Price: Rs 345
The stock may have seen a selling climax due to the intensifying competition, which has led to a tariff war among existing service providers. The stock fell on sustained hammering from Rs 435. On Thursday-Friday, there was volume multiplication without a further fall. This suggests all potential selling has been absorbed. Keep a stop at Rs 315 and go long since it could bounce till Rs 345.
Indiabulls Real Estate
Current Price: Rs 290.95
Target Price: Rs 270
The stock has run into resistance between Rs 290-300, which has remained despite very high volumes. On a correction, it could fall till Rs 270 or lower. Keep a stop at Rs 295 and go short. If it does break Rs 295 and closes above Rs 300, reverse and go long with a stop at Rs 290 and a target of Rs 320.
Power Trading Corp
Current Price: Rs 103.8
Target Price: Rs 115
The stock has made an extraordinary breakout on a big volume expansion. The formation's target would be about Rs 115. Keep a stop at Rs 101 and go long. Book 50 per cent profit at Rs 110 and move the stop up to Rs 106.
Sesa Goa
Current Price: Rs 354.7
Target Price: Rs 380
Sesa Goa’s stock is making a sequence of successive record highs. Because of this, it is impossible to calculate a reliable target, however projections of Rs 380 appear to be reasonable. Traders are advised to keep a trailing stop at Rs 345 and go long at the counter. Raise the stop by 10-units for every 10-unit rise in the share price.
ICICI Bank
Current Price: Rs 959
Target Price: Rs 1,010
The stock had a breakout to a 2009 high on strong volume expansion. It is difficult to calculate a target since anywhere between Rs 970 and Rs 1,010 is possible and there is no recent price history. Keep a stop at Rs 945 and go long. Raise the stop 10-units on every 10-unit rise.
