Markets likely to drift down further

MACRO TECHNICALS

The current downtrend could worsen into a full-scale reversal to a long-term bear market.

Another catastrophic week ended with the Nifty down 5.22 per cent at 2316.05 points while the Sensex was down 4.75 per cent at 7685.64 points. The rupee stabilised slightly after the reverse repo rate hike and the busy season credit policy while Defty lost "only" 4.91 per cent.

Breadth signals were quite dismal. Advances were far outnumbered by declines. The BSE 500 lost 4.49 per cent and the index futures were all trading at substantial discounts. The put call ratio actually declined suggesting that market wasn't oversold despite the huge drop in prices over the past three weeks.

Outlook: Clearly we are in the middle of a sharp intermediate downtrend and this could worsen into a full-scale reversal to a long-term bear market. Next week, there will be hardly any trading due to the holidays. That is likely to mean that market drifts down further.

Rationale: Practically every indicator is signalling a continuing downtrend though the pace of decline is slowing down and the RoC seems to be bottoming. There is reliable support only at 2250 Nifty and 7550 Sensex and those levels are likely to be touched before the end of the holiday season.

Counter-view: There may be some value-buying coming in over the next 10 sessions because prices have declined to more acceptable levels for long-term players. However the holiday season means that most operators will be out of action (except for token muhurat trades). Without substantial volumes, prices can't move up again.

Bulls & bears: Very few stocks look capable of holding onto current prices in the present scenario. There is a downside apparent on almost any stock one observes.

The short list of potential counter-cyclicals includes Apollo Hospitals, Cummins, HDFC, L&T, NIIT, NTPC, Sun Pharmaceuticals, Tata Chemicals, Thermax and UTI Bank.

Every other stock looks to have a major downside "� banks and energy stocks could be harder hit than the general run of shares.

MICRO TECHNICALS

Infosys
Current price: 2416
Target price: 2355, 2425

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There is a little support at 2400 but more likely, a downside till the 2355 levels. At 2350, Infosys should find strong support. If it reaches that price, there is likely to be a bounce back till around the 2425 mark. Sell, with a stop at 2425 and cover at 2360. At 2350-2360 levels, go long and cover again at 2415.

NTPC
Current price: 94.15
Target price: 96, 100

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The stock seems to have bottomed and it has seen strong buying at the 92-94 band. There is an upside till 96, where there will be selling pressure. If it closes above 96, there is a likely target of 100. Keep a stop at 92 and go long.

Reliance Industries
Current price: 741
Target price: 730, 760

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RIL has strong support at 730 and a strong resistance at 760. It is likely to see some range-trading between these two levels. Nimble traders may be able to exploit this by selling above 755 and buying below 735. If 730 is broken, the next support is at 720. If 760 is broken, the next resistance is at 780.

Tata Chemicals
Current price: 182
Target price: 188

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The stock has received strong buying support at these levels and it seems to have bottomed. There's a resistance at the current mark. If it closes above 185, the next level could be 188. There is no downside, so it may be worth taking delivery with a stop at 178.

Thermax
Current price: 818
Target price: 845

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The stock has a potential upside till around 745. However if support at current levels is broken, it could drop till around the 790 levels. It may be worth going long, with a stop at 790. There is a danger of high intra-day volatility as well.

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