Indecisive trend ahead

MACRO TECHNICALS

Nominal price movement coupled wth increases in trading volumes - that would sum up the market action in the last week.

Market participants are still waiting for clarifications and modifications of the disastrously-structured combination of turnover tax and capital gains tax.

The Sensex closed at 4951.17 points for a small rise of 0.12 per cent; the Nifty closed at 1558.8 points for a rise of 0.36 per cent.

Breadth signals showed definite improvement. Volumes rose in the last three sessions; the ratio of advances to declines showed a healthy bias in favour of advances and the nifty put-call ratio dipped to moderately oversold levels from an extremely oversold level. The BSE 500 rose 1.71 per cent, suggesting that interest in mid-caps stocks was also fairly widespread.

Outlook: The market remains stuck inside a trading range of roughly Sensex 4800-5050 (Nifty 1500-1600). Perhaps a resolution to the turnover tax and capital gains tax issues will help impart a sense of direction.

There are no clear background signals from indicators that offer a clue as to the direction of the next definite trend. We'll have to wait for unequivocal price signals from a breakout backed by volume expansion.

One thing is likely; whenever the indices do break out of the current trading range, there will be a significant move. The long-term indications are somewhat negative.

Rationale: The market has stayed inside this trading range since the third week of May - around eight weeks so far.

The trend could remain indecisive for another month or so - the next breakout should be significant in terms of both magnitude and direction.

If we examine long-term charts using weekly bars, oscillators like the RSI and ROC are showing negative divergences with lower bottoms between May 21 and June 25 even though prices have hit higher bottoms.

Trending indicators like a weekly MACD and weekly 20-40 MA combinations are also offering sell-signals.

Counter-view: Overbought-oversold oscillators like the RSI and ROC haven't emitted useful trading signals over the last three years.

So, it's an open question as to how useful the negative divergences are. Trend-following MA-based systems are only useful once a clear trend is established. We may well have a strong bull-run if the FM comes up with sensible amendments to the turnover tax and capital gains tax.

Bulls and bears: With corporate results pouring in, several sectors as well as isolated individual scrips seem capable of moving up regardless of the market's lack of direction. Software stocks seem to have aroused some interest - Infosys, Mastek, Rolta and Satyam attracted buying interest.

There seems to be bullishness across the ferrous metals sector as well - Jindal Steel, Sawpipes, Sesa Goa and Tisco moved up and looked capable of going further.

Stocks like Adani Exports, Amara Raja, Apollo Hospitals, Arvind Mills, BPL, Chennai Petro, GE Shipping, Hero Honda and Tata Finance also looked bullish.

MICRO TECHNICALS

INFOSYS
Current price: 1477
Target price: 1600

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The stock has just completed a bullish pattern that was spread over approximately six months. It should have a short-term target of around 1600. It may go up further in the medium-to-long term.

Over the next four months, the target could be in the range of 1800. There is fair support at around the 1440 level - keep a stop there.

ADANI EXPORTS
Current price: 557
Target price: 590

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The stock has been bullish for the last nine months. It spurted to a new four-year high last week. The upside target should be around 590, where the stock will run into stiff resistance.

There is support only around 515-520 due to the quick rise; so the risk is significant. Keep a stop at around 530 and go long.

TATA FINANCE
Current price: 44
Target price: 57

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The stock has seen a big volume expansion even as the price has moved up. It has almost completed a bullish saucer formation. If the stock closes above the 45 level, it ought to move up until around the 55-57 level at least. Keep a stop at 39, if you decide to enter.

HERO HONDA
Current price: 462
Target price: 480, 515

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The stock dropped from the 535 level till a low of 445. It appears to have found support and started to turnaround and done so on rising volumes. It should see a rise till around the 480 level at least and probably more.

The long-term trend appears to have been flat for around seven months. It's likely that the stock will get stuck in a trading zone between 480-510 but there is a chance that it can be held until that upper limit.

JINDAL STEEL
Current price: 530
Target price: 630

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The stock has just completed a bullish saucer formation with a bottom around 425. It has seen sharply expanding volumes accompanying the breakout. The short-term target would be around the 630 level. There is support around 520, keep a stop at 515.

NOVARTIS
Current price: 443
Target price: 515

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The stock has usually been a little short of liquidity after it was delisted from the NSE. However, it has seen volumes expansion in the recent past as the price has travelled up to 443. There is strong resistance at 448-450.

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