Market close to its peak?

MACRO TECHNICALS

Weak breadth usually means the uptrend is not quite sustainable.

The Sensex soared to a new high in what turned out to be a week of rather puzzling trading patterns. The Sensex closed at 12736 for a gain of 2.94 per cent. The Nifty rose 2.98 per cent closing at 3676, while the Defty rose 3.17 per cent.

The driver was IT stocks with the CNXIT rising by an amazing 8.57 per cent this week. Breadth signals did not confirm the new highs. Volumes rose but remained concentrated in the index stocks.

Advances were outnumbered by declines. The BSE 500 rose by 2.05 per cent but smaller stocks saw a lot of negative movement. In terms of institutional attitude, the FIs remained positive while the mutual funds were net sellers until Thursday.

Outlook: We've seen a breakout in the heavyweight segment and the price move was backed by volumes. The short-term outlook should remain positive and the Nifty has current targets in the 3750 range. However, the weak breadth signals and the time factor suggest that the market must be very close to a peak.

Rationale: Strictly by the book, a price rise backed by volume expansion ought to be enough to keep the trend going. But weak breadth usually means the uptrend is not quite sustainable.

The intermediate trend has been up for 16 weeks "� that's past the sell-by-date for intermediate trends. Traditionally Diwali and immediately afterwards also tends to be bearish.

Counterview: When a market hits an alltime high, there is usually a massive surge in positive sentiment. That doesn't last very long but it does tend to move the market while it lasts. If there's profit-taking, the market could find support in the region of 3600-3625.

Bulls & bears: The big gainer was of course the IT sector, led by Infosys. Wipro and TCS also saw massive jumps. Among other stocks, there was scattered buying across the entire universe. Presumably this is being driven by stock-specific speculation as Q2 results season gets underway.

ABB, Grasim, NDTV, Suzlon, RComm, RIL, HDFC Bank, HDFC, Indian Overseas Bank, Nicholas Piramal, Siemens and NDTV appear to be among the stocks favoured by bulls.

There was a massive sell off in PSU refiners however "� somewhat surprising given that crude prices are now travelling down but Q2 results are likely to be pretty poor for this segment.

MICRO TECHNICALS

Grasim
Current Price: 2678
Target Price: 2850

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The stock has moved up steadily on stable volumes. It has a likely target of 2850 and it could move up further than that if volumes expand. Keep a stop at 2650 and go long. Weekly charts suggest a long-term target of 3150 so it may be worth taking a delivery position with the perspective of 4-6 weeks

HDFC Bank
Current Price: 987
Target Price: 1010

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The price move trendline has steepened in the past three sessions. It's impossible to project a target from the charts with much accuracy. Keep a stop at 975 and go long. Book partial profits above 1010 since one target projection seems to suggest the move will halt around that level.

Infosys
Current Price: 2089
Target Price: NA

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Adjusting for all the splits and bonuses, Infy is now trading well beyond its February- March 2000 highs. It has seen a near vertical move in the past three sessions. It's impossible to project a target with this formation. Keep a stop at 2030 and go long.

Reliance Comm
Current Price: 367.65
Target Price: 415

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The stock has made a big breakout on a massive volume expansion (evidence of block deals perhaps). It has a target in the range of 415 "�though it's difficult to make projections in a completely new zone. There's solid support at 350-355. Keep a stop at 350 and go long.

Wipro
Current Price: 557
Target Price: 585

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The stock has seen volume expansion along with a price upmove. There is likely to be resistance around the 585 mark, which will halt this rise. There is good support at 540-545. 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.)