Signals seem healthy

MACRO TECHNICALS

The first round of elections doesn't seem to have bothered the markets much. Since the special pre-election session on Saturday, prices have risen slightly.

The Sensex closed on Friday at 5925 points, for a gain of 1.09 per cent. The Nifty was up 1.30 per cent while closing at 1892.45. The Defty gained only 0.56 per cent as the dollar made a sharp recovery against the rupee.

Breadth signals were reasonable although declines outnumbered advances on Friday. However, the BSE 500 rose by 1.36 per cent and that suggests that investor interest was certainly present in mid-cap stocks. Volumes were good all through but appeared to climb along with selling on Friday afternoon.

Outlook: The short-term trend appears indecisive and perhaps waiting for the outcome of the voting. There is apparent resistance around Sensex 6000/Nifty1920 and the support at Sensex 5900/Nifty 1875 level appears to be critical.

If that support breaks, prices could drop till the levels of Sensex 5775/Nifty 1835 before finding support again. Short-term momentum indicators such as the 10-day ROC, 14-D RSI and the MACD are all emitting indecisive signals. If the market does move above Sensex 6000/Nifty 1920 levels, it could hit new all-time highs very quickly.

Rationale: The post-election period is very likely to see a relief rally regardless of actual seat positions. That's been the trend in previous elections even when weak coalitions are elected. Time-series calculations also make an upmove in May-June seem likely.

Counter-view: Every election has unique characteristics. An unexpected outcome could lead to a sharp decline as well. While the underlying market signals seem healthy and the long-term trend seems strong, the bull market has now lasted nearly a full year. Indian bull-markets have been known to abort or reverse direction after 12-14 months.

Bulls and bears: The annual results are a stock-specific driver at the moment. Among sectors, banks have appeared to be bullish for the last 3 weeks and stocks such as Bank of India, Corporation Bank, ICICI and SBI were strong. Cement counters like ACC and Gujarat Ambuja looked strong.

There was selective interest in pharmaceuticals with Aurobindo Pharma, Burroughs, Dr Reddy's, Glaxo, Hoechst and Novartis seeing selective interest.

IT stocks like Mastek and Hughes did well and so did telecom stocks like MTNL and Bharti. In an isolated way, there was interest in Chennai Petro, Jindal Steel, SmithKline Consolidated, Thermax, Trent and Zee.

MICRO TECHNICALS

TRENT
Current price: 314
Target price: 370

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A huge move from 265 to 314 came on high volumes on Friday. This completed a V-shaped formation. Technically speaking, the chart pattern could project to a minimum price of around 370 and a likely price of 400 within the next 10 sessions.

However the move was too abrupt to be completely trustworthy. Keep a stop at 294, where there ought to be decent support.

BHARTI TELE
Current price: 177
Target price: 215

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The stock has seen a massive expansion in volumes as well as a rise in price due to its excellent results. It has completed a bullish v-shaped formation and consolidated above the support level of 172. The medium-term target should be around 215, a price which is likely to be achieved in three weeks or so.

CHENNAI PETRO
Current price: 165
Target price: Not applicable

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The stock has broken out of a trading range with a gap at 155 and an expansion in trading volumes. It appears poised for a steep climb. However, targets are difficult to project with this sort of price formation.

Go long and set a sliding stop loss, moving it up as the price rises. Set the initial stop at around 160 because this sort of formation is likely to feature a large daily range.

ICICI BANK
Current price: 320
Target price: 370

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After a sharp rise on Friday, the ICICI Bank stock is interestingly placed. There's resistance around the 319-320 level where it closed.

If it moves up past that level and closes above it for two successive sessions, the stock will complete a bullish formation. It would then have a target of around 370.

JINDAL STEEL
Current price: 533
Target price: 540, 575, 600

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The stock is testing resistance at around the 540 level. If it crosses that resistance and closes above 540, it will complete a bullish formation with a minimum target of 575 and a more likely target of about 600. It's possible to accumulate at current levels, waiting for a breakout.

THERMAX
Current price: 425
Target price: 430,500

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The stock is in a similar situation to Jindal Steel. It is testing resistance at the 430 level where it would complete a bullish formation.

If Thermax closes above 430, it will then have a target of around 500, which would be achievable inside around 3-4 weeks. Either accumulate at current levels or wait for a close above 430 and go long, using 430 as a stop-loss level.

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