Low volumes and negative divergences.
The market alternated between sessions of tight range-trading and net gains. The Nifty closed at 5,262.8 points for a week-on-week gain of 2.45 per cent. The Junior closed at 10,607 points for a gain of 0.93 per cent while the Defty rose 2.4 per cent with the rupee slightly softer.
Breadth was reasonable with advances outnumbering declines but smaller scrips definitely underperformed the pivotals. The BSE 500 was ahead by 1.8 per cent. Volumes were low in both cash and derivatives segments. The domestic institutions remained moderate net sellers while FIIs continued to be strong net buyers.
Outlook: The market trend remains up. But momentum is weak and there are several divergent bearish signals. There’s support at 5,150, and resistance beyond 5,250. The intermediate trend has been positive for six weeks. Given settlement, there is a good chance that the intra-day volatility will rise. The market could establish a new 52-week high beyond 5,310, but it may also end next week in correction mode with net losses. In fact, these two possibilities are not incompatible and could occur in tandem.
Rationale: The low volumes and narrowing breadth (where small stocks are under-performing) are bearish divergences in a market that’s making gains. The positive long-term trend and the positive intermediate trend should together be sufficiently in-phase to test the previous 52-week high (5,310 on Jan 6, 2009). But the divergences also suggest a possible correction quite soon. There’s clearly defined support at 5,150 and obvious resistance beyond 5,250 and near the 52-week high.
Three things could happen. The market rises beyond the 5,310 mark but fails to hold on to its gains, closing out next week with net losses. The market zooms beyond 5,310, heading into a new 52-week zone. The market continues to range-trade between 5,150-5,250. The negative divergences make the first (new high and net loss) scenario look more likely. In that case, the Nifty may swing between 5,150-5,350 with a wider daily high-low range. A correction below 5,150 would push it down till 5,050.
Counter-view: The upside breakout came in the past three sessions although it wasn’t backed by serious volume expansion. The uptrend could be strengthened by short-covering in the settlement week. In that case, 5,310 may be easily broken and exceeded. However that would be dependent on volume expansions. Maybe the settlement will be the trigger for that.
Bull & bears: Among major sectors, IT continues to outperform the Nifty while the Bank Nifty’s performance has been more unstable. Big IT stocks have done well in the last week though there was some selling on Friday. Financials and bank stocks could be under pressure on Monday. Auto and auto ancillaries are seeing profit-booking after a sharp run up.
Bulls displayed a sudden burst of enthusiasm for telecom stocks in the last couple of sessions. Cement has made steady gains. Real estate continues to be among the weaker sectors. FMCG companies especially HUL and ITC are stabilising after heavy selling. Energy stocks have seen a lot of volatility but the charts appear to be net-positive.
MICRO TECHNICALS
MAHINDRA & MAHINDRA
Current Price: Rs 1,073.5
Target Price: Rs 1,125
The stock has corrected to hit firm support. It has the potential to bounce back till around the Rs 1,125 level. Keep a stop at Rs 1,068 and go long. Increase the position beyond Rs 1,090 and reset the stop loss to Rs 1,085. Start booking profits above Rs 1,120.
AXIS BANK
Current Price: Rs 1,156
Target Price: Rs 1,125
The stock has seen heavy selling above the current level and it is likely to make a pullback till around the Rs 1,125-1,130 mark. Keep a stop at Rs 1,165 and go short. Start booking profits below Rs 1,135 and reset the stop loss to Rs 1,140.
INDIABULLS REAL ESTATE
Current Price: Rs 160.4
Target Price: Rs 145
The stock has seen a fair amount of selling. It’s bound to test support at Rs 155, and if that is broken, it will fall to around Rs 140-145. Keep a stop at Rs 164 and go short. Increase the position below Rs 155. Book profits below Rs 145.
SAIL
Current Price: Rs 247.3
Target Price: Rs 255
The stock has bounced off a solid support and its looking bullish with decent volumes in the past three sessions. It has a minimum target of Rs 255 and it could rise further. Keep a stop at Rs 242 and go long. At Rs 255, book 50 per cent profit and reset the stop to Rs 252.
RCOM
Current Price: Rs 167.95
Target Price: Rs 180
Volumes have risen with prices. There’s a potential target of Rs 180. Keep a stop at Rs 164 and go long. Increase the position above Rs 169. Start booking profits above Rs 177. If you wish to hold a position beyond Rs 180, reset the stop to Rs 178.
