Expect a correction

MACRO TECHNICALS

The market may continue to fall in the short term though there is strong support at Sensex levels of 12100-12200.

The market broke on Thursday and the correction continued on Friday. However the first three sessions of the week had been so strong, week-on-week losses were almost nominal.

The Sensex closed at 12285 points for a loss of 0.6 per cent. The Nifty was down 0.38 per cent at 3650 points. The Defty lost 0.58 per cent as the dollar recovered a little ground after several weeks of sliding.

By the weekend, breadth was negative and declines far outnumbered advances. The BSE 500 lost 0.6 per cent over the week. Volumes were average except on Thursday when the selling peaked and volumes rose with the sell off.

Outlook: The reaction may continue till the Nifty 3575-3600 (Sensex 12100-12200) zone where there is strong support. If it drops below that level, there is a chance of a significant intermediate correction.

Rationale: Momentum indicators such as the RoC, RSI and MACD are all showing sell signals. There's no reliable support at the current levels and the market still appears a little overbought.

If you're using MA signals, in the past 6 months, whenever the index has dropped below the 10 DMA, it has usually declined till at least the level of the 20 DMA. Currently the 10DMA is at 3663 and the 20 DMA is at 3590.

Counter-view: The selling on Thursday and Friday was initiated by the FIIs. If they switch attitude again after the weekend, that may be enough to trigger an immediate bounce in the index values. On the upside, there's a lot of resistance above 3700 but the Nifty could reach 3700-levels on intra-day moves.

Bulls & bears: The impression that the correction is likely to continue is reinforced when one looks at individual index stocks. There are several groups that look bearish and very few individual stocks that look bullish as such.

Cement shares took a hammering on the news that price-controls would be imposed. ACC, Grasim, Ultratech and Gujarat Ambuja all witnessed huge selloffs. A lot of action centred round the new listing of RPL and by extension, its parent RIL.

RIL was sold off even as the listing of RPL occurred and RPL saw stag action that led to a pull back after it listed at a huge premium to the issue price. Downtrends were also visible in Bank of Baroda, Canara Bank and Bank of India. BPCL also took a hammering through the week.

On the bullish side, Dabur was up, and Hindalco and Sterlite look firm "� Sterlite could benefit from the extra liquidity added by the bonus and stock split in the middle of a bull-run. Larsen also seems firm and Wockhardt and NTPC are potentially bullish.

MICRO TECHNICALS

Dabur
Current Price: 170.6
Target price: 178

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The stock has completed a bullish formation on decent volumes despite the bearish market trend. The likely target is around 178 and it may move further. Keep a stop at 165 and go long.

Gujarat Ambuja Cement
Current Price: 105.8
Target price: 98

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GAC saw panic selling on Friday and the next reliable support is likely to be around 98. Keep a stop at 109 and go short. Cover at least part of the position below 99. If 98 is broken, the stock is liable to fall till around 86. So go short again, if it closes below 98.

NTPC
Current Price: 131
Target price: 137

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The stock consolidated on Friday at excellent support between 127-130. It has the potential to pullback till around the 137 level quite smoothly. Keep a stop at 128 and go long. Book partial profits above 135.

RIL
Current Price: 1066.85
Target price: 1000

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The stock saw a sell off on massive volumes through Thursday and Friday. It has reliable support only around the 1000-mark.keep a stop at 1080 and go short. Cover at around 1005.

Sterlite
Current Price:600
Target price: 625

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The effect of the combined bonus and stock split has been to add a lot of liquidity to an already liquid stock. Sterlite is also in the middle of a bull run. Although it's difficult to make projections on such little historic data, Sterlite should have an upside to around 625 levels. Keep a stop at 585 and go long.

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