The uptrend could lead to net gains for four-six weeks
After a brief correction early in the week, the market surged up again to close at a 15-month high.
The Nifty closed at 1125.55, ahead 2.30 per cent on the week. The Sensex was at 3583.06 points, a gain of 2.38 per cent. The Defty gained 2.32 per cent, as the rupee lost a little ground after sustaining a long uptrend versus the dollar.
Breadth looked reasonable with advances beating declines. Volumes rose substantially in pivotals although there was a tapering in mid-cap interest.
The BSE500 gained 1.92 per cent, an underperformance versus the Nifty/Sensex. The put-call ratio in Nifty options dipped to 0.28, which is extremely overbought. But that skew was influenced to a degree by settlement considerations.
Outlook: The uptrend could lead to net gains for 4-6 weeks. We expect targets of Sensex 3750/Nifty 1200 before serious correction.
But every short-term indicator is overbought. Oscillators such as the 10/14 ROC and 14 RSI are overbought and showing lower peaks even as the indices register higher peaks.
This negative divergence suggests short-term corrections would continue and trading could be very volatile. There is support at Sensex 3450/Nifty 1080 -- this support was tested last week.
Rationale: This looks like the first phase of a new bull market. The intermediate uptrend started in May after bottoms of Sensex 2905/Nifty 920 were registered in late April.
The first intermediate uptrend in a new long-term bull market invariably overshoots conservative targets. It lasts a long time (around 10-12 weeks) and the rises come with good breadth and volume.
Counter-view: To a very large extent, the last couple of weeks have been driven by positive FII inflows. If the foreigners change their outlook on Indian stocks, the indices could collapse. Even then, support exists at 3365/1060.
In case of changed sentiments, the rally will peter into consolidation around 3275-3365/1035-1060
Bull and bears: This rally has been driven generally by old economy players and there has been a great deal of sector rotation.
Next week could see cement shares holding the limelight along with select IT stocks. The pharma sector also looks set to do well.
Among cement shares, Grasim-L&T, Gujarat Ambuja, Jaiprakash and Madras Cement show up as strongly bullish. Among IT stocks, Aptech, NIIT and SSI rose strongly. So did the big three -- Infosys, Satyam and Wipro.
Digital is seeing a positive re-appraisal after the strong reaction and Mastek is also bullish. Among pharma stocks, Ranbaxy, DRL, Divi's and Nicholas looked good.
In the old economy, many other stocks maintained a bullish profile. SBI and ICICI led the banking sector with Oriental Bank also bullish.
Apollo Tyres continued a bull run along with GE Shipping, Indian Rayon, LML, Nestle, Nocil, Saw pipes, Sterlite, Sterlite Optical, Tata Power, Telco, Tisco, United Phosphorus and Voltas. The PSUs may have gone slightly off the boil.
MICRO TECHNICALS
NOCIL
Current price: 10.65
Target price: 13.00
The stock has broken upwards with pretty high volumes. Volatility in a penny stock is always likely to be high. But there seems to be a possible target in the zone of 13.00-14.00.
On the downside, set a stop around 7.85
