The market traded lower into settlement week and on Friday, the Nifty was down by 1.54 per cent at 4,870.1 points. The Sensex was down 1.4 per cent while the Junior was down 3.74 per cent. The Defty lost just about 0.9 per cent as the rupee staged a recovery week-on-week but still looked weak at Rs 42.6.
Volumes were on the low side except on settlement day. Week on week, the number of declines far outnumbered the advances. The Midcaps and the BSE 500 lost 2.7 per cent and 2.53 per cent respectively.
Clearly, smaller stocks did worse than mega-caps. The IT sector provided the only ray of sunshine with a sharp rise of 6.78 per cent. The FIIs were big sellers while the MFs were token buyers.
Outlook: The market is testing a key support at 4800 after making a downside breakout. If it closes below Nifty 4750, it could easily slide till 4500. If the support holds, a sharp but narrow recovery is likely until strong resistance is hit between 4950-5050.
Rationale: On May 2, the market hit an intra-day peak of 5298. It fell, stabilised and consolidated in range-trading.
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A downside breakout came last week when it dropped below 4950. The target is 4750 where there is strong support. In fact, there's strong support at 4800, which has held in the past two sessions. If the Nifty drops below 4750, it would have an extended target of 4500.
Counter-view: The interaction of the Nifty with its 200DMA suggests the market may be entering a synched 3-phase bearish move. That is when a bearish intermediate trend is coupled with a bearish short-term move and "tripled" with a bearish long-term trend.
In this scenario prices drop rapidly like Jan 2008 when prices fell from 6350 to 4450. The Nifty has been now below its 200 DMA (Exponential is at 5022) for 6 successive sessions. If it is a 3-phaser, the downside could be more than 4500.
Bulls & Bears: IT stocks did well as the rupee stayed low in absolute terms. HCL Tech, Infy, TCS, Wipro, Satyam, etc., shored up the indices. Dr Reddy's, Ranbaxy, Sterling Bio and Lupin were strong as well so pharma showed defensive value.
Banks took a hammering on uneasiness about inflation and rupee weakness. But the banking momentum signals are over-sold. If there's a pullback, HDFC Bank (which has already started to bounce) and J&K Bank would be among the best performers. Energy stocks waited for concrete announcements on price hikes.
There was heavy trading across all the PSUs and in Cairn, Essar Oil, RNRL and RPL. Prices showed downwards bias. RIL saw heavy selling and so did ADAG's RPower after the stock-split.
Most other sectors were down but real estate, automobiles and cement were especially hard-hit. Hero Honda, TVS, M&M all saw big losses as did Bharat Forge.
There were isolated winners such as Bhushan Steel, Gujarat Alkalies, Hindustan Zinc, IVR-Prime, IVRCL, L&T, Sesa Goa, Sun TV, Tech Mahindra and Welspun Gujarat. In each case, the reasons were stock-specific.
MICRO TECHNICALS
Bhushan Steel
Current Price: Rs 909.70
Target Price: Rs 1,050 (10 sessions)
The stock has seen strong buying and risen from a bottom at 750 in the past three sessions. It's hitting a key resistance at the current price, which is very close to its 200 DMA. If it closes over 915, it would have a target of 1,050 within the next 10 sessions. Keep a stop at 900 and go long.
Dr Reddy's
Current Price: Rs 714
Target Price: Rs 730, 760 (Long-term)
The stock has made an upwards breakout upon rising volumes. It has achieved its first target and it will run into resistance at 730. If it can clear 730, it would have a potential target of 760. Worth accumulating with a stop at 695 and period of 15-20 sessions.
Larsen & Toubro
Current Price: Rs 2,982.65
Target Price: Rs 3,100
L&T has seen aggressive buying at the 2700-levels. It's been pushed up to current levels with strong volume expansion. There's room for a target of 3100 to be achieved. Go long with a stop at 2950. Start booking profits at 3075.
Mahindra & Mahindra
Current Price: Rs 590
Target Price: Rs 565
The stock has made a downside breakout with some volume expansion. It has a downside target of 565 but the lack of volume makes the breakout less powerful. Keep a stop at 605 and go short. Start covering at 570.
Reliance Industries
Current Price: Rs 2,403.5
Target Price: Rs 2,500
The stock is sitting on the support of its 200 DMA following a bout of heavy selling. There is a chance of a recovery till the 2,500 mark. If it falls again however, the next reliable support is at 2,350. Keep a stop at 2,385 and go long. If 2,385 is broken, you can go short with a target of 2,350.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)
