Nifty to test the 3550-point level

MACRO TECHNICALS

The Nifty upside is likely to be limited to 3725-3750 points, with strong resistance at 3750.

The week began flat and ended with a big slide. The Nifty closed down by 2.94 per cent at 3,608.55 while the Sensex lost an even larger 3.53 per cent to close at 12,430 points. The Defty performed comparatively better, losing only 2.56 per cent courtesy the rupee's hardening.

Breadth was quite poor with a negative advance-decline ratio and low volumes that almost dried up totally in the non F&O stocks.

The Bank Nifty lost a massive 5.68 per cent but the CNX IT did comparatively better than other industry segments, easing off only by a relatively nominal 0.75 per cent. The Nifty's put-call ratio was well below 1"�in the overbought zone!

Outlook: The market is likely to test support at the 3,550 level again. So far, this key support has held but it's quite likely to be severely tested in the next week. The upside is likely to be limited to 3,725-3,750. If it breaks, the slide could end at 3,350.

Rationale: The market is clearly still in an intermediate downtrend and this does smell like the first phase of a serious bear market. The dip has lasted five weeks "� if it is the first phase of a new bear market, it could last quite a bit longer. If the support at 3,350 breaks, there is a downside target that can be projected till 3,350.

Counter-view: If the support holds at 3,550, the pattern will look less threatening. Even in that case, the upside is limited by very strong resistance at 3,750. At best, the downtrend will be replaced by a phase of range-trading.

Bulls & bears: Except for a very short list of stocks, the mood was either bearish or sideways. If you have to go long, Dr Reddy's, TCS, Tata Motors, CMC, TVS and Union Bank inspire the most confidence.

The price-action suggests that the RIL-IPCL merger has been fully discounted. Reliance Communications is under massive selling pressure. As and when there's a bounce, it's likely to be sharp and sudden. But there are no real signs yet that this is around the corner.

MICRO TECHNICALS

CMC
Current Price: 1305
Target Price: 1500

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The stock appears to have completed a bullish breakout, albeit on low volumes. It has a likely target of 1,500. This is the latest phase in a bull-run that began in mid-January. Keep a stop at 1,275 and go long. Be prepared for massive intra-day volatility.

Dr Reddy's
Current Price: 683.6
Target Price: 705, 745

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DRL has completed a bullish formation on fairly decent volumes. It could have a target of up to 750. Keep a stop at 675 and go long. Partially cover at 705. If DRL closes above a major resistance at 705, it is likely to touch 745 at the least.

Nalco
Current Price: 230
Target Price: 215

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The stock seems to have completed a technical correction after a sharp sell-off. It could ease down to about 210 in the next five sessions. Keep a stop at 235 and go short. Start covering below 220.

Reliance Communications
Current Price: 377
Target Price: 365

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Reliance Communications has broken a key support at 390 on a strong volume expansion. It has a downside till the 365 levels at least. Keep a stop at 390 and go short. Partially cover at 365. There is a chance that the stock will drop further, to support at 350.

TCS
Current Price: 1237
Target Price: 1295

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Tata Consultancy Services has maintained its price line through the latest downturn and it has also generated reasonable volumes. There is an upside till the 1,295-1,300 level, which is likely to be achieved at least on an intra-day basis. Keep a stop loss at 1,215 and go long.

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