Correction Likely

MACRO TECHNICALS

After a couple of losing sessions, we could see another surge as the intermediate and long-term trends are bullish.

The market surged to yet another set of all-time highs with four sessions of straight gains. The Sensex closed at 12359.7 points, gaining 2.63 per cent since last Saturday's special session.

The Nifty rose by 2.99 per cent while the Defty rose 3.12 per cent as the rupee stayed strong. Breadth signals were fairly good. Advances far outnumbered declines through the entire week. Volumes were average however. The BSE 500 jumped by 2.68 per cent and the Bank Nifty produced a standout performance with a rise of 7.18 per cent.

Outlook: There's a good chance of a correction early next week. Momentum indicators registered negative divergences through the week with the RoC moving down and the RSI staying flat as the market rose.

On Friday, there were signs of an impending short-term price correction. Both the intermediate trend and the long-term trend remain bullish however and we could see a couple of losing sessions followed by another surge.

Rationale: Projected price targets of Nifty 3675 (Sensex 12450) have been met on an intra-day basis. Friday's session featured short bursts of profit-taking, which could continue on Monday. There's support at around Nifty 3575-3600 (Sensex 12200-12250) and the market should hold at about those levels in a short-term correction.

Counter-view: The bull has found fresh legs every time it appeared to have been exhausted. This could happen again "� especially since the breadth signals suggest that most participants are bullish. The FIIs bought heavily last week as did the Indian mutual funds and apparently operators and small investors as well.

Bull & Bears: The big gains came from bank and pharma stocks "� two sectors, which have underperformed earlier during the big bull run. Bank shares improved across the board.

Some bank stocks such as PNB, SBI, Kotak and Corporation Bank appeared to have topped out but there could be room for an extended uptrend in Bank of Baroda, Bank of India, Syndicate Bank, and maybe HDFC Bank and IOB.

Among pharma stocks, Ranbaxy, Dr Reddys, Cipla and Sun Pharma continue to look interesting. The third comeback sector was PSU energy stocks "� Gail and ONGC looked really strong as does Kochi Refineries and perhaps HPCL.

There was scattered buying across most other sectors "� Reliance Industries, VSNL, GE Shipping, Indian Hotels, Mahindra and Sail were among the more prominent gainers, which might hold onto their uptrend even if the market corrects.

MICRO TECHNICALS

Dr Reddy's
Current Price: 1679
Target Price: 1625, 1725

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In the last three sessions, DRL has swung through the range of 1625-1725. Any breakout outside this range would establish a new trend.

In the meantime, the day trader could try to exploit the wide daily range. Go short anywhere above 1700 with a stop at 1730 and cover that position below 1650. Go long anywhere below 1650 with a stop at 1620. If the stock closes outside this range, go with the trend.

Gail
Current Price: 291.95
Target Price: 305, 365 (long-term)

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The stock is coming off a bottom at 280. Keep a stop at 285 and go long. There's room for a move till the 305 level. Cover above 305. GAIL may also be worth accumulating on delivery with a 6 week perspective. If it crosses a congested range between 305-320, it could go till the 365 level.

Mahindra & Mahindra
Current Price: 680.15
Target Price: 710

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M&M seems to have made a classic breakout from a saucer formation with an accompanying volume expansion. The projected target would be about 710. Keep a stop at 665 and go long.

Reliance Industries
Current Price: 1099.25
Target Price: NA

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The stock is clearly in a strong uptrend. It's impossible to set targets with an upmove along a 50-degree trendline. But you can set a trailing stop at 1080 and go long. Move the stop up 10 for every 15 point move.

Syndicate Bank
Current Price: 97.85
Target Price: 110

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The stock has moved up from a low of 73 in the past five sessions. It's generated good volumes and it has a promising spike formation. The projected target would be about 110 and there's good support at 94. Keep a stop at 93 and go long.

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