The market is likely to meet another burst of profit-taking and resistance
The Sensex closed at 3499.5 points for a gain of 4.33 per cent. The Nifty was up 4.17 per cent at 1100.25 points while the Defty gained 4.46 per cent as the rupee strengthened inexorably versus the greenback.
Breadth indicators remained somewhat below-par although they improved in the course of the week. Volumes definitely improved in the wake of fund-based buying.
The BSE 500 gained 4.24 per cent while the ratio of advances to declines was marginally positive. Interest seemed to dwindle in the cash segment, however, with most of the buying concentrated in pivotals.
Outlook: There's an old saying: "Never fight the trend". But there are always exceptions to such rules of thumb. Despite the strong uptrend, a correction looks extremely likely.
The market has steamed through several resistances but it will meet another burst of profit-taking and resistance in the zone Nifty 1100-1120/Sensex 3500-3550.
This correction should occur within two sessions. There is support at Sensex 3450/Nifty 1085 and lower down at Sensex 3365/Nifty 1060. Since the intermediate outlook of four-six weeks remains good, expect buyers at either of those levels.
Rationale: There are negative divergences in short-term momentum indicators. Standard indicators like the 10-day ROC and 14-day RSI had lower tops while the indices saw higher peaks. Coupled to shaky breadth, this means an overdue correction.
However the intermediate trend is pretty powerful and, it looks like the first explosive move in a new long-term bull market. Such a move could last at least another month. So this won't be a very severe correction.
Our previous targets need to be revised upwards. Before the uptrend that began in mid-May finally peters out, peak values could hit Sensex 3750/Nifty 1200 levels.
Counter-view: Volumes and breadth are key factors in bull-runs. Breadth has already eased, and volumes were concentrated in big stocks this week.
If volumes drop, the market would ease below the secondary support of 3365/ 1060. In that case, the rally will abort with consolidation between 3275-3365/1035-1060.
Bulls and bears: The rally continues to be driven by the old-economy. The banking sector has undergone a correction and stocks like Bank of Baroda and Bank of India saw renewed interest.
Other financial stocks that rose included HDFC and LIC Housing, which generated massive volumes. The energy sector saw enthusiastic buying with BPCL, HPCL, ONGC all rising while there was a small selloff in IOC. The Reliance group was also favoured -- Reliance Capital and Reliance Industries shot up along with BSES.
Other old economy pivotals that rose included Apollo Tyres, Century Textile, ITC, GE Shipping and Indian Hotels.
There was some interest in Grasim-L&T while Thermax was strong. Dr Reddys led a pharma bull-run though there was a selloff in Ranbaxy. PSUs like Bhel saw interest along with Tata Power.
The best ICE performers were CMC, Digital, Moser Baer and VSNL. Metal producers SAIL, Hindalco and Sterlite had buyers as did optic-fibre players Aksh and Sterlite Optical.
MICRO TECHNICALS
Dr Reddy
