Does Friday's sell-off suggest a downtrend?

MACRO TECHNICALS

There's a support at about Nifty 3915 and another one lower down at 3875.

Breadth signals were negative with advances far outnumbering declines. The BSE 500 lost 0.57 per cent.

The Bank Nifty lost 1.52 per cent and the CNX IT lost 0.78 per cent. The FIIs bought in small quantities through most of the week but sold massively on Tuesday. Mutual funds sold heavily on Wednesday.

Outlook: There's a support at about Nifty 3915 and another one lower down at 3875. If the market turns around at either of these levels or in-between, this is just a minor correction.

Below 3875, the next support is at 3725. There's a chance that the sell-off on Friday presages a downturn in the intermediate trend.

Rationale: Momentum signals have been negative for weeks but the price line has continued to rise. The intermediate trend has been effectively positive since mid-July, which means that it is way overdue for a reversal.

Counter-view: It's dangerous to call an intermediate correction on the basis of a marginal 0.9 per cent pullback. We can however set targets, which a continuing uptrend must beat.

As mentioned earlier, the downside in a minor correction would be limited to another 100 Nifty points at best.

On the upside, there will be continuous resistance between 4000-4045. If the market closes above 4045 setting new record highs, it will confirm that the uptrend is still alive.

Bulls & bears: Most stocks were bearish. The frontline stocks were almost uniformly bearish or neutral. The short-term perspective on ACC, Bajaj, Dabur, Gail, Hero Honda, Hindustan Lever, ITC, Reliance Industries, Reliance Communications and Moser Baer was negative.

There was however, selective buying in Reliance Energy, Aurobindo Pharma, i-flex, IDBI, Polaris and NTPC. The preponderance of heavyweight stocks that looked bearish makes it more likely that the correction will continue.

MICRO TECHNICALS

AUROBINDO PHARMA
Current price: 678.5
Target price: 690, 720

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The stock completed a bullish breakout when it climbed over 662. Volumes were fair though they dipped post-breakout. The short-term target would be 690. There is a fair chance that the stock could move till around the 720 mark. Keep a stop at 665 and go long.

ACC
Current Price: 1105
Target Price: 1025

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The stock has seen a strongly bearish move in the past four sessions, moving down from a high of 1195. The move only has reliable support in terms of chart patterns between 1025-1055.

A Fibonacci retracement calculation also suggests a bottom somewhere between these two level. Keep a stop at 1120 and go short. Cover below 1060.

I-FLEX
Current Price: 2046
Target Price: 2100

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The stock has climbed on another burst of frantic buying after Oracle revised its open offer to Rs 2100. Impossible to judge how high it could go but 2100-plus is guaranteed.

The problem is more likely to be an all-buyer situation. In an event-based trade like this, it's also difficult to set stops though there will be a plunge if Oracle refuses to be stampeded into moving even higher. Set a stop at 2000 and go long, if you can stomach the risk.

POLARIS SOFTWARE
Current Price: 147.6
Target Price: 160

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Polaris completed a bullish breakout when it climbed past 143 on high volumes. The projected target on the basis of the breakout formation would be 160. Keep a stop at 143 and go long. Book some profits above 155 because there is a resistance at 156, which would slow down the move or halt it.

RELIANCE ENERGY
Current Price: 554.9
Target Price: 585

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The stock started a recovery from 460 levels after bottoming in late-October. The long-term pattern is still bearish but showing signs of a possible trend reversal. Even if this move flatters to deceive, it could still move till about 585 before it runs into serious resistance. Keep a stop at 540 and go long.

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