Nifty to trade between 3850 and 4150

MACRO TECHNICALS

Budget-week-trading is always volatile and the volatility expansion this week suggests that it won't be different in 2007.

A four-session sell-off meant that the settlement went through under conditions of great turmoil and it was followed by another crash. By Friday, the Nifty was down 4.99 per cent and closed at 3938 points. The Sensex was down 5.04 per cent at 13652.

The Defty lost 5.42 per cent as the rupee slid against the dollar.

Breadth was terrible with advances practically non-existent by the weekend and volumes expanded sharply as the market slid. The BSE 500 lost 5.03 per cent.

The Bank Nifty was down 6.3 per cent while the CNX IT lost comparatively less at 4.79 per cent. The March settlement is too new to make valid statistical deductions from trading patterns. The FIIs were net buyers last week except on Friday and the Indian mutual funds were very slightly positive.

Outlook: The Nifty is hanging at, or just below, a critical support at 3950. The momentum indicators are quite oversold but likely to remain that way.

The market is clearly in a downtrend but has the nadir been reached? The next support is at Nifty 3850. On the upside, there's resistance at 4150. Expect a range of at least 3850-4150 next week as the Budget contributes volatility.

Rationale: Budget-week-trading is always volatile and the volatility expansion this week suggests that it won't be different in 2007. The Nifty has a pattern of lower bottoms and lower tops. If the Budget breaks that pattern, by forcing prices above 4150, the downtrend will also be broken. If the Budget is received poorly, the support at 3850 will surely break.

Counter-view: The support at Nifty 3950 was not definitively broken this week and the Nifty may just rally from that level.

The last few sessions pre-Budget almost always feature a rally. So the week may start strong. It's impossible to judge if that will last. Technical analysis suggests that the market is pessimistic but the market doesn't have enough information to make it a reliable indicator of the FM's pronouncements.

Bulls & bears: On the basis of the past four sessions, there are no bulls! Sentiment got worse once the news of IT raids on share-brokers came through.

Cement shares such as ACC, Grasim and Gujarat Ambuja took a hammering and energy/refining stocks did equally badly with the singular exception of Reliance Industries.

Banking was another industry, which was hit across the board. The pharma industry is shaken due to the controversy surrounding the withdrawn Mashelkar report.

Tata Steel and Hindalco have both stabilised after taking a hit since the success of their respective takeover bids. If there's a reversal next week, stocks could recover equally dramatically across the board.

MICRO TECHNICALS

Grasim
Current Price: 2270
Target Price: 2200

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The stock broke an important support at 2500 with a massive volume expansion. It has a downside till the 2200 level. On the upside, a climb back till the 2500 level could be expected if there's a recovery. Keep a stop at 2300 and go short. Cover at 2200. If the stock rises above 2300, go long with a stop at 2270.

Infosys Technologies
Current Price: 2237
Target Price: 2325

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Infosys held at an important support and seemed to have defensive strength. It would be a bellwether stock if there's a recovery. The minimum upside target is 2325. Keep a stop at 2200 and go long.

Mphasis BFL
Current Price: 290
Target Price: 305

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The stock has shown the strength to keep moving up on decent volumes despite the bearish overall conditions. It completed a bullish formation when it closed above 285. Keep a stop at 285 and go long. Book some profits at 305 "� the potential upside is until 315 at least.

Oriental Bank of commerce
Current Price: 199
Target Price: 215

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The stock was pounded down to 199 after breaking a critical support at 215. It has strong support at 195, so the downside is limited. On the upside, it could bounce back to 215 on a reversal. Keep a stop at 194 and go long. Cover above 215.

Suzlon Energy
Current Price: 1048
Target Price: 1135

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The stock actually rose as the market fell so it could be a counter-cyclical hedge. It has the potential to keep rising until the 1135 level. Keep a stop at 1035 and go long. Book partially profits above 1100.

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