Expect high daily volatility, support at 4,275 or 4,200.
The market slid considerably last week and despite a partial revival, it ended in the red. The Nifty closed at 4,327.45 points with a loss of 2.33 per cent. The Sensex was down 2.19 per cent at 14,401 points. The Defty lost 3.6 per cent as the rupee weakened. Breadth signals were poor. Declines far out-numbered advances and volumes were low through the week.
The Junior lost 3.03 per cent and the BSE 500 was down 2.37. Trading outside the F&O segment was quite limited. The FIIs were heavy sellers and the domestic institutions were also sellers though in smaller quantities.
Outlook: In settlement week, sentiment is muted. But a fairly strong carryover trend and chances of short-covering on Wednesday and Thursday could lift the market. The short-term trend may be liable to find support either at 4,275 or lower down at 4,200. Expect volume expansion and higher daily volatility whichever way the market moves.
Rationale: The intermediate trend may be reversing to bearish after 6 weeks though this is not confirmed. The short-term trend seems down and it could test support at 4,200.
The upside in case of short-covering could be about 4,450. Volatility is always high in settlement week and cash volumes are likely to rise because the F&O market has been consistently generating high volumes.
Counter-view: In terms of chart signals the Nifty hit a higher intermediate top at 4,650 on August 12 and if the low at 4,248 on last Friday was trustworthy, that was a higher bottom as well. If so, the intermediate trend is still bullish. The worrying signals are the shrinking volumes and the very poor breadth.
Bulls & bears: The 39 new inductees to the F&O stock section did not create many waves in terms of either volumes or price movements. Banks continued to be hard-hit with the Bank Nifty losing 4.3 per cent week-on-week.
Other rate-sensitive sectors such as real estate and infrastructure also saw sell offs. The CNXIT lost relatively less ground due to the weaker rupee. PSU refiners were savaged with all of them losing disproportionate ground. However, producers like ONGC and Cairn were less affected and private refiners such as RIL and Essar also held their ground.
The Bank Nifty could rebound sometime next week on short-covering. In that case, Axis Bank, ICICI and HDFC Bank would be among the larger gainers.
Another interesting possibility is metals. Non-ferrous producers like Hindalco, Sterlite and Hind Zinc had strong price lines on Friday. Tata Steel and Sail saw more muted recoveries. Apart from these, there were scattered gainers like Hotel Leela, Maruti, Ranbaxy and Titan.
MICRO TECHNICALS
Axis Bank
Current Price: Rs 679.85
Target Price: Rs 720
The stock has recovered from a low at Rs 635 on high volumes in a single session. This is probably due to short covering. It has the potential to move till Rs 720 and it could go further with the next resistance at Rs 740 and then Rs 760. There will be extreme volatility however. Keep a stop at Rs 665 and go long.
Cairn
Current Price: Rs 247.15
Target Price: Rs 260
The stock has made a steady recovery from a low of Rs 210 in late July. It is not generating much volume however. It has a minimal target of Rs 260 and a potential upside till Rs 275-280. Keep a stop at Rs 240 and go long.
Hotel Leela
Current Price: Rs 32.5
Market Price: Rs 35
The stock has seen unusual volume expansion and it has good support at Rs 30-31. The upside could be around Rs 35 at the minimum and more likely will test Rs 38. Keep a stop at Rs 30 and go long. If the stock closes above Rs 35, increase the position with a target of Rs 38.
Sterlite
Current Price: Rs 627
Market Price: Rs 660
After bottoming at Rs 590-Rs 600, Sterlite is now moving into a range-trading pattern. Volume expansion makes an upside breakout look likely. The stock has a potential upside till around the Rs 660 level. Keep a stop at Rs 620 and go long. Start booking profits above Rs 655.
Titan
Current Price: Rs 1,237.4
Target Price: Rs 1,300
The stock has seen a bullish engulfing pattern with Friday’s prices ranging much wider than previous sessions. It has a potential upside target of Rs 1,300. Keep a stop at Rs 1,220 and go long. It’s liable to run into resistance above Rs 1,280 so book partial profits at that level.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)
