Market likely to see slide

MACRO TECHNICALS

The uptrend seems to have matured while poor breadth signals point to bearishness.

The market shrugged off torrential rains and the Oil and Natural Gas Corp disaster to register new all time highs on four successive sessions.

Eventually the Sensex closed at 7635.42 points after crossing the 7700 level, for a week-on-week gain of 2.86 per cent. The Nifty had a less spectacular performance gaining 'only' 2.06 per cent and closing at 2312.3 per cent. The Defty was up 1.33 per cent as the rupee slid against the dollar.

The broad BSE 500 was up 0.95 per cent on the week. Total advances were outnumbered by declines by the weekend. Volume action was understandably strange because of the rain and the cancellation/postponement of the key settlement session. But overall volume action seemed reasonable.

Outlook: The market could slide on Monday although it should find support at Sensex 7550 (Nifty 2265). The uptrend that started in early May seems to have almost matured in terms of time period. The poor breadth signals are the other bearish signal.

Rationale: The narrowing of the market is evident from the fact that broader indices performed worse than narrow indices.

This is a typical signal at the peak of an uptrend and, it's backed by the fact that the intermediate trend has been up for 12 weeks. Even in strong bull markets, its rare for a intermediate trend to stay in force for longer than this.

Also the weakening rupee could cause a review and possible selloff by FIIs (who have been a major source of liquidity with Rs 8,000 crore in net July purchases).

Counter-view: Pure price-volume are still positive across the major indices. This could mean that the bull-run will continue after a 2-3 session pause.

The market has shrugged off unexciting Q1 results, torrential rain, the Oil and Natural Gas Corp accident, etc. It could ignore the normal time-period for an intermediate trend reversal.

Bulls and bears: Most of the bullish action is now concentrated in bank stocks with scattered interest across other sectors. Bank stocks such as Corporation Bank, ICICI, HDFC Bank, Bank of India, SBI, Union Bank all look capable of moving up more.

In other sectors, Bajaj Auto, Bharat Petroleum Corporation, Bharti, Dr Reddy's laboratories, Ashok Leyland seem likely to attract bullish interest.

This is a very short list of bullish stocks and sectors in a market trading at record highs. That's one reason why we expect this week to start with a sell off.

MICRO TECHNICALS

BHARTI TELE
Current price: 283
Target price: 315

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The stock saw a rise in prices accompanied by a rise in volumes. It's difficult to set targets since it's in a new zone and it has exceeded all the previous chart-projections.

However, the stock remains bullish and is worth trading with a trailing stop. Go long with a stop at 267, and move the stop up as the stock rises. If the priceline maintains the current slope for another week, the stock should hit 315.

CORPORATION BANK
Current price: 489
Target price: NA

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The stock has moved up 70 in the last week. It has completed a bullish formation on high volumes.

It should have a target of about 515. The only issue is high daily range, which means that stops close to current price will be triggered unnecessarily. Keep a stop at 470 and go long.

DR REDDY'S LABS
Current price: 837
Target price: NA

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The stock has almost completed a bullish inverted head and shoulder formation at the weekly time-frame. It is now encountering resistance at 835-845 level.

If it closes above 845, especially if it closes above 845 on high volumes, the projected target would be about 1000. Go long, and keep a stop at 825.

UNION BANK
Current price: 134
Target price: 155

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The stock has moved up smoothly and just completed a bullish saucer formation on the weekly charts. The projected target should be about 155. There is support at 130. Keep a stop there at 130 and go long.

BAJAJ AUTO
Current price: 1449
Target price: 1485

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The stock has just climbed above a previous trading range and done so with a volume expansion.

The projected target would be around 1485-1500. There is support at 1425, keep a stop there and go long. Be prepared for a wide daily range.

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