The market crashed last week fulfilling earlier ominous warning signs. The Nifty closed at 4,627 down 4.97 per cent after hitting an intra-day low of 4,536. The Sensex was down 5.14 per cent at 15,572 points. The Defty was down 5.57 per cent as the rupee slid again. The FIIs continued to be heavy sellers, while domestic funds were moderate net buyers.
Background signals were poor with declines outnumbering advances considerably. Volumes were up on Wednesday and Thursday when the market swung through 200 Nifty points and ended lower. Most smaller stocks underperformed the Nifty. The CNX Nifty Junior was down 6.97 per cent, while the BSE 500 was down 5.65 per cent. The Midcaps lost even more disproportionate amounts and ended 7.5 per cent down.
Outlook: The support at 4,500-4,550 held last week and it may be tested again. On the upside there is resistance at 4,750. The market is more likely to bust through the lower end of this trading range than the top end. But it may test the upper limit again as well.
Rationale: The intermediate trend is confirmed down. Last week saw lower troughs to confirm earlier lower peaks. The trend reversal took place in early May after the 5,298 peak. The intermediate downtrend could stay in force another 4-6 weeks. By definition, that will mean troughs lower than 4,535.
Counter-view: Momentum signals suggest the market is over-sold in the short run. That could trigger a rise to 4,750. If the Nifty closes above 4,800, it would be a positive signal suggesting that the intermediate downtrend has eased.
Bulls & Bears: Most large caps were massive losers last week and the choices are really between stocks that may have bottomed and those that are likely to slide somewhat lower. The CNX IT was a relatively strong performer losing only 2.5 per cent. However, most IT stocks looked weak by Friday afternoon.
The Bank Nifty was at the other end of the spectrum suffering 6.7 per cent erosion and very few banks looked capable of bucking the trend. The energy sector also saw losses after a disappointingly small hike in retail prices. PSU refiners and marketers did especially badly and RIL and Essar were also bid down.
Cairn was the only stock that looked strong. There were scattered losses across most other sectors. The few stocks that looked as though they were strong included Hindustan Construction, Mahindra & Mahindra, Sesa Goa, Reliance Energy, Voltas and Ultratech Cement.
There were some signs of bullishness among power stocks as well with Suzlon and Tata Power both experiencing pullbacks late in the week.
MICRO TECHNICALS
Bharti Airtel
Current Price: Rs 802
Target Price: Rs 775
The stock is intriguingly poised. Friday was bearish with an engulfing pattern
