The market recovered some ground aided by apparent short-covering and a sliding rupee that drove the IT sector heavyweights up.
The Nifty rose 3.51 per cent to close at 5157.7 points, while the Sensex rose by 4.17 per cent. The Defty gained only 0.8 per cent as the rupee slid to 42.5. Both foreign and domestic institutions were net buyers, though in moderate quantities.
The ratio of advances to declines was positive. Volumes were on the lower side of average. The Midcaps rose by 5 per cent while the BSE 500 was up 3.65 per cent. The CNXIT index was an outperformer, up 5.03 per cent while the Bank Nifty saw short-covering that pushed it up 4.73 per cent.
Outlook: The market has range-traded for a fortnight between 4900-5300. Given the low volumes, this pattern could continue. If it does, next week is more likely to see declines than advances.
A breakout with a close above 5300 or below 4900 would be significant but that is unlikely to come without a volume expansion.
Rationale: We're seeing a typical range-trading pattern with low volumes and low daily ranges. The VIX is also low side and heading towards the overbought.
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The Nifty is oscillating around the key benchmark of the 200 DMA with strong resistance above 5150 and strong support at 4950. There is very heavy congestion between 4900-5300 due to a history of high-volume trading. On current volumes, breakouts are unlikely.
Counter-view: The oscillation around the 200 DMA implies that the long-term trend (down since January) is being tested. A breakout would need a trigger that caused a jump in trading volumes. But if there's a breakout, it is likely to set up a target of either 4500 or 5700, depending on direction. Given the global macro-economic and political situation, down is more likely than up.
Bulls & Bears: Banks, metal stocks and IT counters were the three major gainers during this week and sugar stocks also saw bullish action. Banks saw short-covering that compensated for an earlier downturn.
However there is apprehension that the RBI may tighten money supply again or raise rates. IT stocks were driven by the rupee sliding. Again, this is liable to reverse if the RBI intervenes. The rise in metals was a slight surprise given the government's attempts to talk down prices.
Refineries and cement shares continued to do badly. Real estate also saw a sell off through most of the week. The patterns in other sectors were mixed with alternating winners and losers.
MICRO TECHNICALS
Cairn
Current Price: Rs 301.3
Target Price: Rs 320
Cairn has a very interesting pattern. There's been strong volume expansion coupled to a 20 per cent rise in the month of May. Last week it hit Rs 301 twice and failed to clear it. If Rs 301 is a double-top, the scrip will decline to the Rs 285 level. If it closes above Rs 302, it has a target of Rs 320. Despite the double-top, may be worth a long position. Keep a stop at Rs 295.
GE Shipping
Current Price: Rs 513.7
Target Price: Rs 550
The stock has risen sharply along with strong volume expansion in the past 10 sessions. It broke an important resistance when it closed above Rs 500. The potential target could be Rs 570. However, it will run into massive resistance at Rs 550 levels. Keep a stop at Rs 500 and go long. Book at least a partial profit at Rs 550.
ICICI Bank
Current Price: Rs 942.85
Target Price: Rs 920
The stock has risen from Rs 860 in the past five sessions in a move that saw declining volumes. The move may see selling pressure come in, especially if the RBI takes action on the monetary front. A pullback to Rs 900 is possible although there's support at Rs 920-levels. Keep a stop at Rs 950 and go short.
Maruti Suzuki
Current Price: Rs 821
Target Price: Rs 845
The stock has made an up-move on good volumes. It will run into strong resistance around Rs 845-850. It has good support at about Rs 810. If it closes above Rs 850, it will probably make it to Rs 875 before it hits the next major resistance. Keep a stop at Rs 810 and go long.
United Phosphorus
Current Price: Rs 355.6
Target Price: Rs 390
The stock has completed an inverted head and shoulder pattern on good volume expansions. This should project to a target of about Rs 390 if the formation holds. Keep a stop at Rs 345 and go long. Expect serious resistance at the Rs 375 level where you should book partial profits.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)
