Market outlook remains positive

The target projection for Nifty is about 6550 around the Union Budget.

The market celebrated the new year by spurting to a new high despite a spike in crude prices and the continuing subprime crisis. The Nifty ended at 6274 after rising to touch 6300.

That was a gain of 3.19 per cent. The Sensex hit 20763 before easing down to close at 20686 for a gain of 2.37 per cent. The Defty underlined the dollar's importance by rising 3.46 per cent. The FIIs and mutuals were both net buyers.

Breadth was good throughout the week and volumes recovered strongly in the new year. The Nifty Junior continued to outperform its elder brother by rising a whopping 5.7 per cent.

The Midcaps was up 6.37 despite a sell off on Friday. The BSE 500 was ahead by 4.15 per cent – action was clearly concentrated in the more liquid stocks.

Outlook: The pattern looks very good with an apparent high-volume breakout from a very promising formation. The target projection would be about 6550 in a timeframe of about 6-8 weeks – that is, around the Budget.

Rationale: Between early November and last week, the Nifty and Sensex performed inverted head and shoulder (H&S) formations and completed breakouts on volume expansion.

The breakout was backed by breadth and there was apparent consolidation. The neckline of the reverse H&S would be around 6185 and that should act as a support on the next short-term correction. Target projections with reverse H&S generally tend to be reliable.

Counter-view: Inverted H&S failure occurs if there is a dip below the neckline. A couple of closes below 6150 would suggest the formation has failed. As of now, this appears unlikely due to the supporting volume and breadth.

Bulls & bears: Despite the strong breadth, there were few clearly positive sectorial trends. Realty stocks such as DLF and Parasvnath were outperformers.

RIL and RPL did well as did RNRL, RPL and REL. Otherwise winners were scattered and included Aban, Aditya Birla Nuvo, Adlabs, Axis Bank, Bombay Dyeing, Cairn, GTL, Hind Unilever, NDTV, ONGC, and Tata Power.

The IT sector continued to log losses with all the majors down. Cement also saw a bearish trend. There were mixed trends in banking where Allahabad Bank, Corporation Bank and J&K Bank were down.

Most auto stocks were down with Maruti and Mahindra losing a lot of ground and Tata Motors also seeing a sell-off. Essar Oil lost ground on large scale profit-booking that may spell the end of a spectacular bull run.

MICRO TECHNICALS

ADLABS Current Price: 1853 Target Price: NA

The stock went through the roof on Friday with a massive volume expansion backing a move from 1575 (open) to a high of 1880 and a close at 1853. It's impossible to project a target with this move. Keep a stop at 1825 and go long. Move the stop up by 25 for every 25 unit move.

DLF Current Price: 1112 Target Price: 1225

The stock has just made a small breakout with a little volume expansion. It has a potential target in the 1250 range but the relatively light volumes make that difficult to achieve. Keep a stop at 1100 and go long. Book profits around 1225.

RNRL Current Price: 208.8 Target Price: NA

The stock has risen to yet another all time high on stable, high volumes. It is difficult to compute a target because the breakout has been quite steep and the past three sessions have established trendline with a 65 degree slope. Keep a trailing stop at 200, go long and move the stop up by 10 for every 10-unit move.

TATA POWER Current Price: 1629 Target Price: 1700

The stock has made a sharp upwards move without the benefit of a volume expansion. It has a apparent target of 1750 but the lack of volumes makes it more likely that the move will peter out at about the 1700 level. Keep a stop at 1610 and go long.