Week Ahead: Nifty hovers at key support

MACRO TECHNICALS

Another week of high volatility ended with the market precariously poised just above a key support after suffering net losses. The Nifty closed down 3.7 per cent at 5120.35 points while the Sensex lost 4.26 per cent in the corresponding period to close at 17464.89 points. The Defty was down 4.39 per cent as the rupee slid.

FIIs and DII were both marginally net positive despite sales towards the end of the week. But breadth signals were clearly negative. The Nifty Junior lost 4.68 per cent while the BSE 500 was down 3.48 per cent and the CNX Midcaps was down 2.03 per cent. Volumes remained on the low side through a week when the Nifty swing through a high-low range of 5,545-5,035.

Outlook: The market could continue its range-trading between 5,050-5,550 next week. There are clearly defined supports and resistances at the two ends of this fairly wide range. But a downside breakout looks quite likely given bearish signals in the short-term.

Rationale: On the downside, the market has been finding support on and around its 200 Day Moving Average. On the upside it has run into heavy selling pressure. This range-trading could continue indefinitely until there is some sort of trigger. This could be a rate cut (either here or in the US), the Budget (good or bad) or some other major event. The market has been in a downtrend since January 9 but it has registered higher peaks and higher troughs in the past week.

Counter-view: The week ended on a bearish note with two big issues being withdrawn in the IPO market. Signals from the hyper-sensitive futures market were also bearish. Another bearish session would be enough to push the market below its 200 DMA. In that case, expect a drop till at least the 4,900 level before the next reliable support is hit. If 4,900 is breached, there could be a panic sell off down to 4,650.

Bulls & Bears: Most stocks remained stuck in range trades in tandem with the major market trend. However banks lost more ground than the overall market as a group while IT stocks were relatively better performers than the broad market. There were very few stocks that made significant breakouts in either direction and the lack of volumes made it difficult to rate even apparently strong price-signals as significant.

Among banks, ICICI lost disproportionate ground while Oriental Bank of Commerce did better than the industry average. Among IT stocks Infosys showed signs of a potentially decent up move. Among other stocks, most engineering counters did badly and L&T was hard-hit. There appeared to be some defensive investment into FMCG with HUL doing well.

Other counters that seemed to be past their worst phase included ABB, ACC and Suzlon Energy. The Reliance and ADA Group counters all continued to generate relatively high trading volumes without developing clear trends.

MICRO TECHNICALS

Hindustan Unilever
Current Price: 211
Target Price: 230

The stock saw a positive session on Friday with a volume expansion. There's a likely target of 220 and a potential target of about 230. Keep a stop at 203 and go long. Partially cover above 220 and hold a reduced position until 230. Book profits at 230.

Infosys
Current Price:1,552
Target Price: 1,600

The stock described an engulfing pattern on Friday with a range larger than on Thursday. It also generated significantly more volume. There's a potential upside till 1,600 at the least and probably until 1,650. Keep a stop at 1,520 and go long.

ICICI Bank
Current Price: 1,074
Target Price: 1,030

The stock broke a key support at 1,095. It has a downside till at least 1025 and maybe further. Keep a stop at 1,095 and go short. Cover below 1,030. If the 1,095 stop loss is triggered, reverse the position and go long with a target of 1140.

L&T
Current Price: 3,528
Target Price: 3,400

The stock fell from 3,875 levels and it could have a further downside if support at current levels is broken. Keep a stop at 3,560 and go short with a target of 3,400. If the stoploss at 3,560 is triggered go long with a stop at 3,530, and an upside target of 3,665.