Last week saw global carnage with all the major markets down by double-digits. The Nifty lost over 14 per cent at 3,279.95 points and it hit a low of 3,199 on Friday. The Sensex was off 15.95 per cent and the Defty down 16.65 per cent as the rupee tested support at Rs 49 before settling at Rs 48.72.
The FIIs have sold close to Rs 5,000 crore of equity in October and Indian institutions have sold about Rs 900 crore. Smaller stocks were harder hit with the Nifty Junior and the Midcaps 50 down 19.9 per cent and 21 per cent respectively. The BSE 500 was off 17.5 per cent. Volumes were moderate and calculation of advance-decline ratios was absurd, since there were almost no advances.
Outlook
Next week prices are likely to move between 3,050-3,450. By closing below 3,800, the market set a maximum downside target of 3,050-3,100, which could be fulfilled. Momentum indicators are oversold but prices could fall until short-covering is triggered close to settlement. But any bounce will be very sharp and a 200-250 point rise in a single-session is likely sometime next week. Either way, big intra-day swings are probable.
Rationale
There has seldom if ever, been a down move of comparable dimensions. Chart patterns of support/resistance are now based on mid-2006 trading patterns. Volumes have been low. There is no major short-term resistance between the Friday close of 3,279 and 3,450. A single session of buying could therefore drive prices up a lot.
Counter-view
Gut-feel says delivery-backed selling will continue, interspersed with occasional short-covering. But there is a chance the market could recover and consolidate with range-trading between 3,400-3,800. The intermediate downtrend started in mid-July and could mature over the next week or two.
Bulls & bears
Stay away from anything outside the highly liquid F&O population. Instead of seeking bullish stocks, which are not easy to locate, long traders could focus on over-sold counters. This is where bounces could generate 7-10 per cent in a single session. Power Grid and Ranbaxy are among the few stocks that actually seem bullish.
On the short side, most stocks that made downside breakouts have fulfilled initial target projections. But many stocks look as though weakness could intensify. These include GMR Infra, HCL Tech, HDFC, Hero Honda, RCom, Idea, Reliance Capital, Dabur, HUL, RPower and Suzlon.
In terms of critical sectors, metals may be bottoming out. While Tata Steel, Sesa Goa and Jindal Steel look to have further downsides, SAIL, Hindalco and Sterlite appear to have found support. In banking, PSUs such as Canara, Indian Overseas, Oriental and SBI look much stronger than ICICI, Kotak, Yes Bank, etc. The IT sector seems to have some downside as well – HCL Tech and Wipro look quite exposed along with second-rank stocks like Rolta and the entire ITES segment.
MICRO TECHNICALS
HCL Tech
Current Price: Rs 170.25
Target Price: Rs 145
The stock made a downside breakout on high volumes. It has a target of Rs 145 and in fact, hit that level briefly on last Friday. Keep a stop at Rs 179 and go long. Wide stops are necessary because there could be a huge intra-day swing. Below Rs 150, start booking profits.
RIL
Current Price: Rs 1,527
Target Price: Rs 1,630
The stock made another downside breakout when it closed below Rs 1,630. It appears to have good support at the current level and short-covering could pull the price back till Rs 1,630. Keep a stop at Rs 1,510 and go long. Book profits above Rs 1,615.
Reliance Power
Current Price: Rs 124.15
Target Price: Rs 112
The stock has made a downside breakout to hit another historic low. It has a possible target of about Rs 110. Keep a stop at Rs 127 and go short. Start booking profits below Rs 114. If the stock does climb above the Rs 128 stop, it could move till Rs 136 on the bounce.
Yes Bank
Current Price: Rs 71.95
Target Price: Rs 65
The stock has made a downside breakout on a big volume expansion. It has a likely target of Rs 65 although there could be some support at current levels. If it bounces within the next three sessions, the upside target will be about Rs 90. Take a stop at Rs 75 and go short. Cover at Rs 65. If the stop is triggered, go long with a target of Rs 90 and a stop at Rs 74.
