A close outside the 2,850-3,250 range would lead to a 300-point move in the direction of the breakout.
Another week of massive fluctuation ended with net gains. The Nifty closed at 2,973 points for a week-on-week gain of 3.03 per cent. The Sensex was up 1.8 per cent at 9,964 points. The Defty gained 6.7 per cent as the rupee made a sharp recovery.
The advance-decline ratio was positive. The broad BSE 500 rose 3.37 per cent. However, volumes remained moderate, rising on the bearish days. For a change, the FIIs were net buyers while domestic institutions sold heavily through the week.
Outlook: Despite high daily volatility, the market stayed inside the wide trading range of 2,850-3,250 and it did not make a decisive breakout in either direction. A close outside these limits would lead to a 300-point move in the direction of the breakout. However, it is quite likely that the market will continue to oscillate between 2,850-3,250.
Rationale: The market is in a range that has been traded extensively both now and in 2006, when such values were last seen. It will require a major volume expansion to engineer a breakout. The intermediate down trend may have matured but instead of reversal, there is indecision. For a breakout, the alignment of FII and FI trading patterns is required, to ensure decisive advantage to either bulls or bears.
Counter-view: If there is a breakout below 2,850, the next serious support is at 2,550 and below that, support is nebulous. The downside risk is quite significant. On the upside, any breakout beyond 3,250 should push the market till 3,550-3,600 but there is very heavy resistance all the way.
Bulls & bears: There is a high correlation between market direction and FII attitude – when FIIs sell or buy, the market moves down or up respectively. There’s also correlation with rupee movements - the rupee strengthens when FIIs buy. There is reverse correlation between IT stocks and a strong rupee. This means IT stocks are likely to run counter to general market moves. Meanwhile, if the rupee strengthens, bank stocks rise and become into a key driver for the overall trend.
Banks did well last week and IT did badly. PSUs like BoB, Canara, OBC, and BoI could outperform. IT majors such as Infosys and Satyam are now resting at key supports. Among other sectors, cement could see a recovery led by ACC and Ambuja. Several auto stocks looked weak – Bajaj Auto made a downside breakout. PSU refiners and OMCs such as BPCL, HPCL and IOC seem to be receiving selective investment.
MICRO TECHNICALS
GAIL
Current Price: Rs 213.85
Target Price: Rs 240
Gail has bounced off a good support at Rs 200. It could recover till the Rs 240 level if the current trading pattern is maintained. However, there is some resistance at Rs 225 and that could be a stumbling block. Keep a stop at Rs 205 and go long. Book partial profits at Rs 225.
GMR INFRA
Current Price: Rs 67.25
Target Price: Rs 82
The stock is making a promising recovery with high volumes from bottoms in the Rs 45-50 range. It will complete a bullish breakout if it closes at or above Rs 70. Keep a stop at Rs 64 and go long. The target would be about Rs 80-82.
NEYVELI LIGNITE
Current Price: Rs 64.35
Target Price: Rs 75
The stock has seen strong volume expansion accompanying a rise from Rs 56. If it closes above Rs 65, it could run up till Rs 75. Keep a stop at Rs 60 and go long. There is strong secondary support at Rs 55, where the stock could reverse if it breaks Rs 60 on a decline.
ORIENTAL BANK OF COMMERCE
Current Price: Rs 148.5
Target Price: Rs 130 (short) & 170 (long)
OBC is very interestingly poised. If it closes above Rs 151, it could run till the Rs 170 level. If it fails to break resistance at Rs 150-151, it is likely to slide all the way back till Rs 130. Take a long position with a stop at Rs 145 and add to the position if it closes above Rs 151. If Rs 145 is broken, go short with Rs 145 as the stop and a target of Rs 130.
SUZLON
Current Price: Rs 70.6
Target Price: Rs 85
The stock has seen strong volume expansion as it has risen off lows in the Rs 40-45 region. It has the potential for a clear run till Rs 85. Keep a stop at Rs 65 and go long. Book partial profits at Rs 80 and clear the entire position above Rs 84.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)
