Expect bearishness to continue

If the 5650 support breaks, the market could slide to 5525 before hitting the next serious support.

The week was uniformly bearish including the ceremonial trading on Muhurat. This trend appears unlikely to alter.

The Sensex closed on Friday at 18907 points for a loss of 5.35 per cent. The Nifty closed at 5663 points for a loss of 4.54 per cent. The Defty was down 3.95 per cent as the rupee provided a cushion. The Junior was down comparatively less at minus 1.69 per cent.

Breadth was quite negative and volumes were down on every successive session. The BSE 500 was down 3.42 per cent while the NSE Midcaps were down 0.5 per cent.

Sector indices like the CNX IT and the Bank Nifty lost disproportionate ground. The FIIs were net sellers and, while the mutual funds were net buyers until Thursday, they didn’t buy enough to redress the balance. Most of the operator volume disappeared as it usually does during Diwali.

Outlook: All the signals suggest a continuation of the downtrend. However the Nifty did land on what looked like a reliable support around Nifty 5600. In the absence of volume it is however likely to test and break that support early next week.

Rationale: Low volumes, poor breadth and dipping price lines are a clearly bearish short-term combination. If the 5600 support breaks, the market could slide till 5525 before hitting the next serious support.

In addition, the market has been in an intermediate uptrend since late August – after 10 weeks, the trend must be maturing and near-reversal.

Counter-view: If institutional attitude, especially FII attitude changes next week, the market could rise again.

This has happened several times in the past three years when fresh liquidity has changed all the technical expectations. It doesn’t seem likely given weakness in US markets but it could happen.

Bulls & Bears: It was one of those weeks when bulls were not very easy to find. There were some speculative action in PSU refiners such as BPCL and HPCL based on the hopes that fuel prices would be hiked.

However RPL saw a massive sell off, dropping about 20 per cent. There were isolated winners such as Bhel, Gail, Hindalco, Nalco, Biocon and NTPC – aluminium seems to be favoured among metals.

Most banks hit the Southern highway in contrast. Among tech stocks, both Infosys and TCS seemed to break crucial supports.

MICRO TECHNICALS

Gail Current price: 462.6 Target price: 490

The stock is generating high volumes and moving up despite the generally weak market. It made a breakout on Wednesday when it closed above 440. The target is in the range of 490-500. Keep a stop at 455 and go long.

Bhel Current price: 2771 Target price: 2850

The stock appears to be consolidating above support at 2750 although the volumes are not very good. It has a likely intra-day target of 2850 in the next four sessions and it will see resistance at 2795. Keep a stop at 2750 and go long. Book some profits above 2795.

Hindalco Current price: 202.5 Target price: 220

Friday‘s trading showed a positive engulfing pattern with a high-low range larger than the previous session, higher volumes and a positive trend. The stock has a minimum target projection of 215 with a likely rise till 220. Keep a stop at 195 and go long.

RPL Current price: 223 Target price: 200

The stock has found some support at the current price after dropping from the heights of 285. It’s likely to test support at 200 level again, at least on an intra-day basis. Keep a stop at 225 and go short. Cover below 205.

TCS Current price: 985.25 Target price: 960

The stock closed below a key support at 995. It now has a downside target of about 960. Keep a stop at 995 and go short. Cover below 965. If it closes below 955, go short again with 965 as a stop and a target of 925. If the support at 955 is broken, the stock is likely to hit support at 925.