Week Ahead: Market likely to test support at 3,800

Week Ahead: Market likely to test support at 3,800

The market nosedived after a quiet settlement. The Nifty closed at 3,985.25 points for a loss of 6.12 per cent while the Sensex lost 6.69 per cent to close at 13,102. The Defty was down 7 per cent in a week when the rupee slid to 46.4. The FIIs continued to be net sellers while the domestic institutions were marginally negative until the settlement day.

Volumes were low and carryover moderate. Declines far outnumbered advances. Every sector of the market was hard hit. The Junior lost 6.5 per cent while the Midcaps 50 lost 6.9 per cent and the BSE 500 lost 6.09 per cent. The CNXIT lost a disproportionate 12 per cent and the Bank Nifty lost 7.7 per cent.

Outlook: The breach of support at 4,000 means that the support at 3,800 is very likely to be tested again next week. It is quite likely that it will be broken this time. Every indication is that we are in an intermediate downtrend and the combination of low volumes and adverse breadth could be toxic.

Rationale: The market held its ground until settlement because that was a trigger for short-covering. No such trigger exists in a brand-new settlement.
All the other signals are negative and even if the market is over-sold, it could drop further. This seems to be the early stages of an intermediate downtrend and the market trends are in “phase” with both the short-term and long-term trends running negative as well. That means strong downwards pressure.

Counter-view: The weakness is basically due to global cues. If there is a confidence boost in the US, that would contribute to a turnaround in sentiment. There’s support at 3,950 and 3,900 and 3,850. There could be rallies from any of these points. However, even if there are small rallies at those points, a full reversal doesn’t seem likely. There will be powerful upside resistance at 4,050 and beyond that, between 4,150 and 4,180.

Bulls & bears: The advances-declines ratios have been overwhelmingly negative. There are no obviously bullish stocks in the F&O space and stocks outside that universe are mainly negative and also lack liquidity at the moment. The IT, banking and real estate sectors have been amongst the worst hit but every sector has lost ground.

FMCG is a traditional haven in times of trouble and it has been among the better performers with ITC, Dabur, Colgate, HUL all holding their ground. Apart from these, there were a few isolated winners such as Sun Pharma, Sesa Goa, Tata Communications and HCL Infosystems. Keep tight stops if you go long.

The bulk of the market, that is, almost 90 per cent of NSE listings lost ground. In such circumstances, it’s better to stick to extremely liquid stocks while trading and obviously, it makes more sense to stay on the short side. Look for stocks that seem to be still some distance off reliable supports when going for short positions.


MICRO TECHNICALS
Infosys Current Price: Rs 1,446.90Target Price: Rs 1,400
The stock has made a downside breakout and hit a support that probably will not hold. It is likely to slide till Rs 1,400 where it will hit a much stronger support. Keep a stop at Rs 1,460 and go short. Be prepared for wild swings caused by the Axon takeover battle. It has the potential for an upswing till Rs 1,510, so be prepared to trade long if the Rs 1,460 stop is broken.

Reliance Industries Current Price: Rs 1,963Target Price: Rs 1,885
The stock has slid from the Rs 2,100 level. It has some support at Rs 1,940 but it’s likely to break that and slide till it hits a band of support between Rs 1,880-Rs 1,900. Keep a stop at Rs 1,975 and go short. Start covering at Rs 1,900

Sun Pharma Current Price: Rs 1,472.5Target Price: Rs 1,490
Under less bearish market conditions, one would have hoped that the stock had an upside target of Rs 1,520 on its next upmove. That is unlikely but it should have the potential to climb till Rs 1,490. There is good support at Rs 1,460. Keep a stop at Rs 1,460 and go long.

Tata CommunicationsCurrent Price: Rs 470.85 Target Price: Rs 490
The stock has made an upwards breakout on strong volume expansion. It has a likely target of Rs 490 and it may have the strength to go further, till it hits stiff resistance at Rs 500. Keep a stop at Rs 460 and go long..
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Indiabulls Securities initiates coverage on Power Grid Corporation with a ‘buy’ rating.

Deutsche Bank has a ‘sell’ rating on Karnataka Bank 29 Sep, 2008, 0442 hrs IST
Deutsche Bank has a ‘sell’ rating on Karnataka Bank with a target price of Rs 115. The ‘sell’ call is based on the following parameters:

HSBC retains ‘overweight’ rating on Bharti Airtel 29 Sep, 2008, 0442 hrs IST
HSBC retains ‘overweight’ rating on Bharti Airtel with a target price of Rs 1,002.

Motilal Oswal downgrades Reliance Capital to ‘neutral’ 29 Sep, 2008, 0441 hrs IST
Motilal Oswal downgrades Reliance Capital to ‘neutral’ with a revised target price of Rs 1,340.

Macquarie initiates coverage on OnMobile Global with an ‘outperform’ rating 29 Sep, 2008, 0440 hrs IST
Macquarie initiates coverage on OnMobile Global with an ‘outperform’ rating and a target price of Rs 650.

Kotak Securities reiterates a ‘buy’ rating on Sesa Goa 29 Sep, 2008, 0440 hrs IST
Kotak Securities reiterates a ‘buy’ rating on Sesa Goa with a target price of Rs 300 per share for an investment horizon of eight months.

HDFC Securities puts 'buy' on Bartronics India 27 Sep, 2008, 0000 hrs IST
HDFC Securities has initiated coverage on the stock with a ‘buy’ rating saying the fast growing AIDC (Automatic Identification and Data Capture) technology in India will further boost the company’s order book and topline.

CLSA Research maintains 'buy' on HDFC 27 Sep, 2008, 0000 hrs IST
CLSA Research has maintained a ‘buy’ rating on the stock saying HDFC has not seen deterioration in asset quality due to rise in rates and its plans to list a couple of subsidiaries in CY09 may act as a catalyst.
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Source:ET,BS.