Expect another dip

MACRO TECHNICALS

The market is running into stiff resistance at 3900-plus levels, and will have to climb above 3962 to signal a continuing uptrend.

A savage correction on Monday and Tuesday was followed by a V-shaped three-session recovery that nevertheless ended in net losses. The Sensex ended down 1.34 per cent at 13614 after dipping to a low of 12801.

The Nifty closed down by 1.85 per cent after dropping to a low of 3657. The Defty was down 1.88 per cent as the rupee stayed at near-parity against the dollar.

Breadth signals remained poor "� more stocks declined than advanced. Volumes were much higher during the sell-off than during the recovery. The BSE-500 was down 1.56 per cent while the Bank Nifty lost 4.43 per cent. The CNX IT showed its defensive strength by closing at almost the same levels as last week.

Outlook: Breadth is poor. Momentum signals are weak. The recovery has been narrow. Chances are, the market will see another dip sometime inside this F&O settlement, which ends on December 28.

The market is running into stiff resistance at 3900-plus. It would have to climb above 3962 to signal a continuing uptrend. On the downside, there's support between 3650-3675.

Rationale: The intermediate uptrend has broken due to the formation of lower lows. Absolute confirmation would occur if the market failed to climb to a new all-time high since that would mean lower highs as well.

If 3650 holds, we'll see movements between 3650-3925. A dip below 3650 would mean an intensifying downtrend.

Counter-view: The market has surprised time and again during the past three years due to the sheer persistence of the bullish sentiment. If the FIIs and mutual funds remain bullish in their outlook, the market will undoubtedly recover sooner than we currently expect.

Bulls & bears: Banking shares have been hit disproportionately hard in the aftermath of the CRR hike. Bears may continue to concentrate on these counters.

At the other end of the spectrum, IT stocks have been least affected. There is likely to be far more focus on large stocks in the coming week because only large institutional players will be in the market.

Most stocks have mirrored the market in behaviour; a sharp drop followed by a sharp recovery, which has nevertheless left them trading somewhere off their closing levels of the week ended December 8.

There were a few winners. Among them, a clutch of pharma stocks such as Aurobindo Pharma, Dr Reddy's and Lupin.

Among technology and telecom stocks, Reliance Communications and Satyam looked quite strong and Polaris Software and Mphasis BFL also looked capable of outperformance.

MICRO TECHNICALS

Dr Reddy's
Current Price: 806.75
Target Price: 820

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The stock has just completed a low-volume upwards breakout by closing above 800. The target projection would be about 850 but this is not likely to be achieved in the short-term because of the low volumes. Keep a stop at 800 and go long. Cover above 820.

Grasim
Current Price: 2728
Target Price: 2775

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The stock is showing a promising price pattern, rising with decent volumes but it has also hit strong resistance. It is likely to move up until 2775 before reversing direction. Keep a stop at 2715 and go long. Cover above 2770.

ICICI Bank
Current Price: 870.8
Target Price: 840-845

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The stock has clawed its way back to pretty much the same levels as on December 8 following a 3-session downturn. It could be a bellwether for the banking industry.

There's strong resistance at 885 and it would be very positive if that was broken. There's strong support at 820-825 and an intermediate downturn should end there.

By Friday evening the momentum was down. We would expect another dip till support at 840 in the short-term. Go short, keep a stop at 885 and cover below 845. If 840 is broken, go short and cover at 825.

Lupin
Current Price: 575
Target price: 600

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The stock has broken out up of a range but its done so on low volumes. The target would project to about 590-600. Keep a stop at 560 and go long. Book partial profits at 590.

Reliance Communications
Current Price: 466.25
Target Price: 510

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Reliance Communications has made a classic V-shaped upwards breakout, moving to a new high on excellent volumes. It has a target projection of about 510. Keep a stop at 455 and go long. Book partial profits above 485. Consider keeping a delivery position for about ten sessions.

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