Technical bounce on the cards

MACRO TECHNICALS

The Nifty may experience resistance at 6,100 and 5,950.

The market plunged due to a massive sell-off by foreign institutional investors (FIIs) coupled with liquidity pressures caused by the Reliance Power initial public offering (IPO). The Nifty closed at 5,705.3 points, down by 7.98 per cent. The Sensex was down 8.7 per cent at 19,013 and the Defty lost 8.06 per cent.

Breadth was terrible with declines far outnumbering advances. The Junior was down 7.78 per cent, the Mid-caps lost 6.75 per cent and the BSE 500 was off 7.5 per cent. Volumes were high as the FIIs sold Rs 7,500 crore in the last three sessions. Indian funds were marginally net buyers.

Outlook: The market is at a fairly solid support. It is also oversold. There may be a recovery till around the Nifty 5,950 level next week. However, the intermediate trend has been down since January 9 and it would be prudent to expect a downside till 5,600 if the support at 5,675-5,700 breaks.

Rationale: Since January 9, the market has registered lower highs and lower lows. It broke key supports at 6,100 and 5,950. Those levels will now be resistances. The next upmove will be short term -- a correction inside an intermediate downtrend.

Counter-view: Through this long bull market, intermediate downtrends have tended to be short. The market has lost 9 per cent from its 6,357 peak. The bottom would be at about 5,600 "� unless the downtrend turns into a major bear market. The speed and extent of recovery depends on FII perspective and that, in turn, depends on the write downs taken by Wall Street, courtesy subprime.

Bulls & Bears: It was a week when bulls were very thin on the ground. The BankNifty went down 7.78 per cent and the CNX IT index was off 7.82 per cent. But the market is so oversold it would be dangerous to go casually short. Some stocks have broken key supports "� Bank of India, Bajaj Hindusthan, TCS, TISCO and Infosys fall into this category and may still be worth shorting. 

The bull must seek stocks that have hit reliable bottoms. Cement has potential "� ACC, Grasim, Ambuja and Ultratech were in downtrends when the market was up and they could remain counter-cyclical. Airtel is another possible bottom pick, as is GMR. Among banks, ICICI, Axis Bank and J&K Bank are strong and Larsen & Toubro and Ranbaxy saw selective investment on Friday.

The Reliance Group and ADA scrips are special cases. They've all taken massive hammerings but the successful Reliance Power IPO should ease the pressure. Reliance Capital, Reliance Industries and Reliance Communications all look more likely to head up than down. Check out the perspective for these counters in the derivatives section. 

MICRO TECHNICALS

Airtel
Current Price: Rs 874
Target Price: Rs 920

The stock has shown defensive strength in the past three sessions and bounced from a low of Rs 820. A mid-week recovery till about Rs 920 is possible. Keep a stop at Rs 860 and go long. Book partial profits above Rs 905.

Ranbaxy
Current Price: Rs 387.90
Target Price:  Rs 415

A big recovery on Friday was driven by high volumes. The stock has a potential target of Rs 415 at least on an intra-day basis. Keep a stop at Rs 380 and go long. Book some profits above Rs 405.

Reliance Industries
Current Price: Rs 2,799.60
Target Price: Rs 3,000

The stock has plunged from Tuesday's all time high of Rs 3,298. There is a potential downside till Rs 2,700 if the selling continues. However, a recovery till Rs 3,000 also looks likely. Keep a stop at Rs 2,775 and go long. Reverse and short if the stop is broken, using Rs 2,800 as a stop.

Tata Steel
Current Price: Rs 782.5
Target Price: Rs 750

The stock has broken a crucial resistance at Rs 800 on fairly low volumes. Target projections suggest a downside till Rs 750 at least and maybe till Rs 715. Keep a stop at Rs 800 and go short. Cover partially at Rs 755.