Support at 3700 crucial

MACRO TECHNICALS

The signs are actually propitious for a short-term bounce.

The Nifty fell from 3893 points to 3726 points in three traumatic sessions after the Budget got panned by every market participant. The Defty did worse losing 4.52 per cent to the Nifty's 4.29 per cent.

The Sensex fell even more sharply, finally closing out the week at 12,886 points after losing 4.4 per cent in the last three sessions.

All in all, a bloodbath with few redeeming features. Most sector indices lost as much or more while volumes spiked up, suggesting that the new trend was of a serious long-term nature.

Breadth signals were exceedingly negative. The FIIs were extremely heavy sellers while the Indian mutuals were moderate buyers. The Nifty's put-call ratio was around 1.

Outlook: The signs are actually propitious for a short-term bounce. The Nifty has hit what appears to be good support and all the indicators including F&O indicators are exceedingly oversold.

However, the Nifty will run into resistance at 3850 levels and the intermediate trend appears to be down though the long-term bull market may still be barely alive.

Rationale: In each of the past three sessions, the Nifty has found support near its 200-day moving average. All the momentum indicators are oversold. Some sort of bounce is extremely likely. It could be a reasonably strong, but short-lived bounce.

The market has clearly been in a downtrend since February 9 and the trend has been accentuated in the past week. The support at 3700 is absolutely crucial. If it holds, we're probably still in a bull market. A climb back past 3900 would be very encouraging.

Counter-view: This sort of market-wide movement (either up/down) generally portends a strong new long-term trend. If the Nifty closes below 3700 for a couple of sessions, that would be confirmed. Be braced for either a short, deep correction as in May-June 2006 or for a long, lingering bear market.

Bulls & bears: For the second week in succession, bullish stocks are tough to find. However the Nifty's behaviour has been mirrored by many stocks, which have also found support close to their respective 200 DMAs. If you do go long, do so with stringent stop-losses.

There's a large selection of potential "bouncers" including Bharti Airtel, Bajaj, Hero Honda, Hindustan Lever. Power equipment companies such as ABB, BHEL and Siemens show some degree of defensive strength. Pharma shares such as Dr Reddy's, Ranbaxy and Sun Pharma could do well and Wockhardt Pharma also looks interesting.

Tata Power is another stock that may make a quick recovery. The big question marks are in the financial sector. Banks have really taken a hammering and may not have found bottom yet.

IT stocks are bottoming out but don't look as though they're capable of an instant turnaround. Cement is another sector, which has taken a big hammering and it may still have a downside.

MICRO TECHNICALS

Hero Honda
Current Price: 692.75
Target Price: 720

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Hero Honda has completed what appears to be a bottoming move, finding support at 650-660 levels. It has a potential upside till 720 and good support at 680. Keep a stop at 680 and go long. Cover at least partially above 710. There is a lot of resistance at 710-715 so it's unlikely to close above that level.

Bharti Airtel
Current Price: 706
Target Price: 740, 765

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The stock has meandered into a pattern of range-trading with a fair amount of intra-day volatility. It has an intra-day upside till about 740 and a good support at 700. Keep a stop at 695 and go long. Cover above 735. If the stock closes above 735, it's likely to reach the 765 level.

Hindustan Lever
Current Price: 179
Target Price: 195

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The stock appears to have bottomed after dipping with a gap on Budget day. It has good support at 175 and a reasonable chance of pulling back till the 195 level. Keep a stop at 172 and go long. Cover partially above 186.

Sun Pharma
Current Price: 969
Target Price: 995

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Another of the rare stocks that has gained since Budget day. It seems to have a reversal pattern which could push it back till the 995-1000 level where there is a lot of resistance. Keep a stop at 950 and go long. Be prepared for high volatility. Cover above 995.

Wockhardt Pharma
Current Price: 373.5
Target Price: 390, 440

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One of the very select set of stocks that has actually gained post-Budget with substantial volume expansion. It's testing resistance at 388 and will hit those levels intra-day at least. If it closes above 390, it has a target of 440. Keep a stop at 365 and go long.

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