The Sensex could breach the 3100 support level considering that the market has seen lower tops since late February
The market slid as reality dawned about the Iraq invasion. The Sensex lost 2.65 per cent, closing at 3115.44 points while Nifty was off 2.9 per cent at 1000.6. The Defty was down 2.48 per cent with the rupee strengthening as the US invasion got bogged down and the price of oil rose.
Market breadth was negative. Advances were outrun by declines. The Put-Call ratio started to rise - a sign that the market was slowly becoming oversold. However, at a value of 0.52, it was still in neutral zone. The broad BSE 500 was down 2.28 per cent. Volumes were low.
Outlook: The market has found support a couple of times in the Sensex 3100/Nifty 995 region. There have been conflicting signals at these support points. The sensitive Williams %R momentum oscillator has shown a positive divergence while vanilla momentum indicators like the RoC have been neutral or overbought.
Given the low volumes and lower tops, the support is more likely to break. If that occurs, the market will probably slide till around 3050/980. Below 3050, the next supports are around 3000/960. The other possibility is a ranging move between 3100-3150; there is strong resistance in the 3045-3065 range.
Rationale: In the most dogmatic terms, since the market has seen lower tops since late February, we could say that it is in a downtrend. Such an intermediate move could last until another 5-6 weeks and we should see lower lows as well.
There is a Fibonacci time signal suggesting a turnaround in late April. So three more bearish weeks are likely. In a war situation, it's sticking one's neck out to bet on this but further bearishness looks most likely with the second high-probability scenario being range trading.
Counter view: A quick end to the Iraqi resistance could lead to a strong surge. That might push values back till around 3225-3250. This doesn't seem very likely and it could be quite irrational because oil prices will continue to be bullish until some Iraqi capacity is flowing back into the global economy. In technical terms, such a rise would almost certainly be capped at the 200 DMA levels of 3225/1045.
Bulls and bears: Sectoral moves could be described in one brief sentence. IT got hammered and PSU bank stocks gained. The latter group included the Bank Of Baroda, Bank Of India, Corporation Bank, Oriental Bank. Bhel and Tata Tea also showed strength.
Colgate, Gujarat Ambuja Cement and United Phosphorus were three stocks that seemed to have found support at lower levels. Hero Honda went into another phase of bearishness as did several pharma stocks like Wockhardt and Pfizer.
Reverse the earlier spread of Plus April Nifty Futures and Minus May Futures with a small profit. The May Nifty is now underpriced versus April in terms of carry so it may make sense to simply buy a naked May Nifty.
An April 1000 Nifty straddle with a plus 1000 April Nifty Put and a Plus 1000 Nifty Call seems reasonable. The position costs around Rs 30 - it seems likely that the market will move beyond either 970 or 1030 before the settlement date.
MICRO TECHNICALS
Colgate Palmolive
Current price: Rs 122
Target price: Rs 128
The stock has apparently bottomed out and seems to be finding selective support. It could rise in the short-term to hit resistance at around Rs 128.
However, this is likely to be a short-term move. The stock has dropped out of a long-term trading range and this is likely to be a technical reaction. The instant it hits the bottom of the previous trading range at Rs 128, selling will push it down again.
Oriental Bank
Current price: Rs 66
Target price: Rs 70
The stock has moved up on respectable volumes. It has tested resistance between Rs 65-69 several times. If it breaks past Rs 70, there will be a fairly strong move with a target of Rs 85-plus.
Wait for a close above Rs 70 and go long. If you buy at current levels, be prepared to hold up to 2-3 months and also keep a stop around Rs 60.
Hero Honda
Current price: Rs 196
Target price: Rs 175
A drop below Rs 200 has serious implications for the scrip. That support was the lower end of the trading range of Rs 200-230, which held for several weeks. The implied downside target is around Rs 170-175.
There is also the likelihood of a technical reaction at some stage when the stock bounces to Rs 202-205 before it meets selling pressure again. Go short with a stop at Rs 205.
Tata Tea
Current price: Rs 190
Target price: Rs 210
The stock has moved against the market trend by climbing out of a trading range and holding above it during a bearish week. It could have a potential target of Rs 210.
However, it is quite likely to trade sideways between Rs 185-195 for a while. Any buyer must be prepared to wait. Keep a stop at Rs 185 if you go long.
Satyam
Current price: Rs 192
Target price: Rs 190
This isn't either a hot buy or sell recommendation. The stock is being discussed as the most volatile bellwether in the IT sector. It is trading very close to a critical support level at Rs 190.
If it drops and closes below this level, the stock could fall to around Rs 175 - a loss of 7.5 per cent. If the support at Rs 190 holds, the stock should recover to around Rs 205. Next week's swings in the IT sector will fall inside that range of 7.5 per cent.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated)
