Market Technicals

Market Technicals

Markets look optimistic

The markets spiked higher, on good volumes, as the resistance of 5897 was overcome on huge volumes. The market breadth was positive as the combined exchange figures were 3099:931.

The capitalisation of breadth was also positive as the commensurate figures were Rs 25899 crore: Rs 4633 crore. The F&O data indicated a 3.62 per cent increase in net long positions with a rise in the PCR.

With the indices closing at the upper end, accompanied with positive market internals and improved volumes, the upmove imbibes confidence in the near term.

The coming session is likely to witness a wide intraday range of 6005 on advances and 5877 on declines due to the larger base effect of Wednesdays range.

The Nifty closed at it’s highest, indicating bullishness. Watch the quality of the upmove hereon as a consistent trade above the intraday high of 6012 with forceful volumes and increased open interest will trigger off a fresh round of buying.

The outlook for the markets on Thursday is that of continued optimism, barring negatives or unforeseen circumstances. The indices may be headed for blue sky territory in the next few sessions. Avoid shorting on rallies.

Vijay L. Bhambwani

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.

Markets will be rangebound

The eventual breakout is somewhat more likely to be upwards but it's almost a 50:50 guess.

The major indices saw little change in a week when the action shifted to the slightly smaller stocks. The Nifty was up a nominal 0.2 per cent at 4518 while the Defty was ahead by 0.68 per cent as the rupee strengthened again.

The Sensex was up by a similarly nominal amount and closed at 15603. The Nifty Junior was however, ahead by 1.29 per cent beating the bigger indices.

Breadth weakened towards the end of the week. The CNX IT lost a massive 4.6 per cent and that was a major cause of the drag on the big indices. The Bank Nifty was up 1.01 per cent.

Both FIIs and domestic mutuals were net buyers until Thursday. The FIIs sold on Thursday and anecdotal evidence suggests that they also sold on Friday though concrete data is not yet available. Volumes were okay and rose on Friday during the selloff.

Outlook: The market is range-trading. The eventual breakout is somewhat more likely to be upwards but it's almost a 50:50 guess. There's support at 4450 and resistance above 4550. A close beyond either of these levels would project to a 100-point move.

Rationale: We've seen several sessions of consolidation in a narrow range between 4450-4550. Clearly, there needs to be a trigger for a breakout.

The intermediate trend has now been bullish for over three weeks. If it remains bullish, the breakout is more likely to be upwards and culminate in a new all-time high.

On the downside, a breakout below support at 4450 would probably result in a bounce from support between 4350-4375.

Counter-view: If the pattern on Friday's session is indicative, there could be heavy selling when the market opens. FII attitude will be crucial. It will be negative if the global credit situation remains unclear.

Bulls & bears: There was across the board selling pressure on IT stocks through the week but both buying and selling was scattered across other sectors.

Quite a few banks and financial service providers did well with HDFC, HDFC Bank, IFCI, Indian Infoline, Reliance Capital, ICICI and Corporation Bank all looking capable of further bullishness.

Cement shares did well until Friday when there was a lot of selling. Reliance Industries continued to hit new highs while there was obvious interest in RIIL and IPCL. Unitech saw buying as did DLF.

MICRO TECHNICALS

HDFC Bank Current Price: 1232.7 Target Price: 1310 (long-term)

The stock has seen volume expansion while developing a promising formation. It faces serious resistance between 1240-1250.

However if it closes above 1250, there will be a target of 1310. Keep a stop at 1225 and accumulate a deliver position with a timeframe of about four-five weeks.

India Infoline Current Price: 842.3 Target Price: 970

A strong uptrend has also been supported by excellent volumes. India Infoline is now trading very close to its all-time highs. It has a short-term target of 970 and a possible long-term target of 1100. Keep a stop at 800 and go long. Consider delivery with a six-week perspective.

Rolta Current Price: 446.25 Target Price: 420

A sharp rally has been followed by an even bigger sell-off. Any important resistance was broken at 450 on high volume.

There is a likely downside target of 420, which is a strong support that's likely to be tested on intra-day basis at least. Keep a stop at 452 and go short. Cover below 425.

Reliance Industrial Infrastructure Current Price: 599.6 Target Price: 700

The stock has seen a single-session jump from 511 on a huge volume expansion. This completes a promising chart formation and projects to a possible target at 700. Keep a stop at 585 and go long. Move the stop up 15 points for every 15 point rise.

Unitech Current Price: 282.9 Target Price: NA

The stock has split very recently and it's due to be added to the Nifty. While both are positive developments, they also make target projections impossible.

Keep a stop at 265 and go long. Book partial profits above 295 and hold the rest for delivery with a three-week timeframe.