Market more volatile

The F&O settlement considerations will lead to high volatility.

The market edged up past one strong resistance only to run into another. Aided by a burst of FII buying on Thursday and steady buying from the mutuals in the first two sessions, the Nifty and Sensex rose by 1.93 per cent and 2.15 per cent respectively to close on Friday at 4252 points and 14467 points. The Defty was 2.5 as the rupee zoomed.

Breadth was good – there seems to be some retail participation and the BSE 500 (up 2.5 per cent ), the Nifty Junior ( up 4.15 per cent) showed that the buying was weighted towards second-run blueships and entrants on the F&O list. Volumes were excellent except on Monday.

Outlook: The market is likely to oscillate between 4200-4300 for a while. Intra-day swings during this settlement week could be quite large but I don't see a breakout as likely. A new breakout could come on Thursday given a huge OI that may translate into a big carryover.

Rationale: There is massive resistance and congestion above 4250. There is very strong support between 4175-4200.

There is large open interest in the settlement week. That means a lot of intra-day volatility as the F&O settlement considerations exerts an influence on spot prices. But supply and demand will probably be evenly matched inside this zone.

Counter-view: The F&O signals do suggest some signs of overheating. Also the intermediate trend seemed to have gone negative in the first week of June – intermediate trends generally take more than 3 weeks to play out. It has not definitively reversed. A reversal back to a bullish intermediate trend would only be confirmed by new all time highs beating 4362.

Bulls & Bears: Banks had an excellent performance in a scenario where sentiment was driven by the ICICI FPO. The BankNifty gained 5.9 per cent. The CNXIT predictably lost ground, dipping 2.3 per cent.

Among individual stocks, SBI and BoI led the charge in the banking sector. Housing finance majors HDFC and LIC Housing did well.

Pharma stocks such as Dr Reddys, Aurobindo and Aventis shot up. Apart from this, there was strongly bullish action in . Bhel, HLL, Hindalco L&T, M&M, Reliance Energy, Tata Power, JP Associates, Educomp and Unitech

MICRO TECHNICALS

Hindustan Lever Current Price: 192.35 Target Price: 210

The stock has seen short-covering followed by opportunistic long-trading, which has generated huge volumes. There is resistance at 196. If that is crossed, a target of 210 is likely. Keep a stop at 189and go long. Book profits above 205.

Educomp Current Price: 2310 Target Price: 2475

The stock has seen a big breakout followed by a consolidation and some profit-taking. It's testing resistance around 2320-2360. It will either settle into range-trading between 2150-2350 or it will breakout again. If it closes above 2325, it will target 2475. Keep a pivot at 2290 and go long. If the intra-day price hits 2290, go short and book profits around 2200.

SBI Current Price: 1455 Target Price: 1550

The stock has made a breakout past resistance at 1450. It can be projected to a target about 1550 or even 1575. There has been a volume expansion along with the breakout and completion of a saucer formation. Keep a stop at 1440 and go long.

Larsen & Toubro Current Price: 2107 Target Price: 2250

The stock is consolidating after a big breakout. It has a target of 2250. Keep a stop at 2075 and go long. Book partial profits above 2150. There is a chance of another session with a high-low range of 150 or more so the stop must be very disciplined.

Unitech Current Price: 524.75 Target Price: 550

The stock has shown a narrowing triangle pattern. This is generally assumed to be a continuation pattern. At the same time, it is consolidating on strong support at 510. Expect a rise till 550 followed by range-trading between 520-550. Keep a stop at 510 and go long.