More correction in the markets

There is strong support at Nifty 5065 and it is quite likely that the market will oscillate between 5120-5220.

A burst of sustained buying on Wednesday propelled the market to new highs. Thursday and Friday saw more muted trading and some profit-taking.

The Nifty moved above 5200 to 5260 levels before easing back to 5185 points for a week-on-week gain of 3.28 percent. The Sensex hit highs of 17979 before closing at 17773 for a gain of 2.79 per cent. The Defty was up 3.85 per cent as the rupee continued to gain muscle.

Domestic and foreign investors showed contrasting attitudes. The FIIs remained very positive while the Indian funds were consistent sellers through the week. Overall advance-declines ratios were positive and volumes were good.

The BSE 500 was up 2.31 per cent. The Nifty Junior crossed 10,000 before actually seeing a weekly decline of 1.47 per cent – the Bank Nifty saw a sell-off of 2.45 per cent, which was reflected in the Junior because of the high bank representation in the index.

Outlook: The chart patterns suggest the correction could continue. There is strong support at 5065 and it is quite likely that the market will oscillate between 5120-5220 rather than even fall to 5065. So expect either a small sell off or range-trading unless the FIIs stay positive and the Indian funds turn buyers as well.

Rationale: Strong resistance was visible above the 5220 level. Momentum broke on Thursday and Friday saw selling from many institutions. On the downside, buying seemed to come in at about the 5150 level. That pattern could continue or there could be a swing down to 5065 which appears a really strong support.

Counterview: It all depends on the FII attitude. This rally has been overwhelmingly driven by overseas fund flows. At least part of that cash has come in on the assumption of rupee hardening, which boosts dollar returns. If the FIIs move out, there could be a significant drop.

Bulls & bears: As stated above, banks and financial stocks saw a sell off – IFCI was especially hard-hit – Corporation Bank appeared to be bucking the sector-wide trend since it actually gained. Despite the rupee, the CNX IT rose 1.34 per cent but there was selling on Friday and Infosys weakened ominously.

The star of the week was new listing Power Grid, which went berserk doubling its allotment price. That energised several other power stocks – ABB, Bhel and Suzlon all did well.

However NTPC saw a big sell-off on Friday after sustained buying over five previous sessions. Among other engineering counters, Larsen was very strong. IPCL and Reliance Industries both saw renewed buying after a few sessions of consolidation.

MICRO TECHNICALS

Bharti Airtel Current Price: 994 Target Price: 1035

The stock saw an engulfing formation on Friday when the high-low range was larger than previous sessions and the trend was strongly positive. It has a target of 1035 and it may touch 1065 in intra-day moves. Keep a stop at 975 and go long. Start booking profits above 1035.

Bajaj Auto Current Price: 2615 Target Price: 2725

The stock appears to have made a breakout from a trading range. It has a target of about 2725. In case of an overall correction next week, it could be a defensive holding. Keep a stop at 2590 and go long.

Infosys Current Price: 1983 Target Price: 1925

The stock shot up on Wednesday but it saw selling on both Thursday and Friday. One would expect a correction to between the 1925-1945 level. If the 1925 support is broken, the stock could dip till the 1865 level. Just ahead of Q2 results, this trend is indicative of general sentiment. On the upside, 2000 appears to be a resistance.

L&T Current Price: 3089 Target Price: NA

Huge volumes of institutional buying pushed the price up and created a breakout from a trading range and to new highs close to 3200. It's not possible to set an upside with this pattern. Keep a trailing stop at 3055 and go long. Move the stop up 25 points for every 50-point rise.

Suzlon Energy Current Price: 1650 Target Price: 1800

The stock has spurted up but the volumes eased on Friday although the price rose. There is a target of about 1800 with a four-week perspective. Keep a stop at 1600 and take delivery. Book some profits above 1720.