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Week Ahead: Long term trend under pressure

MACRO TECHNICALS

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Devangshu Datta New Delhi
A massive downtrend was triggered by around $4 billion worth of FII sales and margin calls. There was a marginal recovery in the last two sessions but the long-term bull market may have reversed.
 
The Nifty hit a low of 4448 before pulling back to 5383 with a week-on-week loss of 5.81 per cent. The Sensex bottomed at 15332 before closing at 18361 for a weekly loss of 3.42 per cent. The Defty was down 5.81 per cent as the rupee reacted to massive outflows.
 
The Bank Nifty was the only index that gained, if marginally. Breadth was poor and the volumes on the recovery were much lower than on the sell-off. The Nifty Junior was down 6.95 per cent. The mid-caps suffered most and lost 9.25 per cent.
 
Outlook: The long-term uptrend was tested and may have reversed. There could be a further technical recovery due to short-covering at settlement but there are massive resistances at 5450 and 5600 as well as higher up. Expect a fairly volatile settlement with a likely upside till around 5750. Also expect prices ranging down to around the 5050 levels before this intermediate downtrend plays out.
 
Rationale: The 200 Day-Moving Average was broken several times intra-day and prices are still hovering around that level - this is a key indicator for the health of the long-term bull market. Indian Domestic institutions don't have the resources to counter-balance further FII selling if that occurs. If the Nifty holds above 5050-5075, it would be reassuring.
 
Counter-view: Weak and over-leveraged retail traders and operators have been flushed out - only committed long-term players are left. If there isn't another wave of FII selling, the market could stabilise and consolidate. However, the market is likely to move around at lower levels on light volumes until such time as the FIIs decide to return.
 
Bulls and Bears: Concentrate on the top 200-odd futures and options stocks - liquidity is at a premium. In fact, a focus on the top 20 would be more prudent. Anything outside the derivatives segment is likely to be difficult to trade.
 
Within the derivative list, gains are more likely until settlement. Banks and financial sector are likely to be among the most bullish segment unless the RBI decides to avoid cuts. Axis Bank, HDFC Bank, Indian Overseas Bank, Reliance Capital and IDFC look quite interesting. There could be scattered investment and value-buying in counters like Bharti Airtel, Reliance Communications, Satyam, GMR and Unitech and also in defensive stocks like HUL.
 
MIRCO TECHNICALS
 
Axis Bank
Current Price: 1097.75
Target Price: 1170
 
The stock has seen alternate buy-sell sessions. It has a likely target of 1170 and maybe 1200 on an intra-day basis. On the downside, there is support at the 1000 level. Keep a stop at 1065 and go long. Book profits above 1150. If it drops below 1050, go short with a stop at 1060 and a target of 1000.
 
Bharti Airtel
Current Price: 915
Target Price: 970
 
The stock has a possible upside till the 990 levels intra-day or 970 on a closing basis. Keep a stop at 885 and go long. If the stock drops below 880, it could fall till the 840 levels. A short would therefore be possible if the 885 top is broken.
 
Reliance Communication
Current Price: 666
Target Price: 715
 
The stock has a likely upside till the 715 level and a downside till 630. Keep a stop at 652 and go long. If 650 is broken, keep that as a stop and go short with a target of 630. On the long trade, book profits anywhere above 700.

Satyam Computer
Current Price: 407.5
Target Price: 430
 
One of the few stocks that has gained with rising volumes. There is a possible upside till the 430 level where there will be heavy resistance. Keep a stop at 400 and go long. If the stop at 400 is broken, there is a downside till 380. There was massive investment buying on Friday. There is a possible upside till 480 levels with some resistance at about 460. Keep a stop at 415 and go long. If the uptrend is broken and the 415 stop is triggered, the next support is 380.

 

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First Published: Jan 28 2008 | 1:20 AM IST

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