Week Ahead: Another test of support at 3,800

Week Ahead: Another test of support at 3,800

If the market closes below 3,715, it could lose another 200 points landing between 3,500-3,550.

A pattern of crash, recovery and another crash saw the Nifty back at 3,818 points for a week-on-week loss of 4.19 per cent. The Sensex eased to 12,526 points for a loss of 4.39 per cent. The Defty was down 5.19 per cent with the rupee diving below the 47 mark.

Volumes were low and declines outnumbered advances by a hefty margin. The FIIs were massive sellers which contributed to pressure on the rupee. Indian institutions were token buyers. The Nifty Junior lost 4.47 per cent while the Midcaps 50 lost 5.33 per cent and the BSE 500 lost 4.78 per cent. Incidentally both Sensex and Nifty hit respective 52-week lows of 12,153 and 3,715.

Outlook: Prospects are bearish. But it’s possible that support at the current levels will hold. If so, the Nifty will range-trade between 3,715-4,150. If the market closes below 3,715, it could lose another 200 points landing between 3,500-3,550.

Rationale: The new lows confirmed an intermediate downtrend is in force. The breach of support at 3,800 on intra-day basis also suggests that sellers are becoming more powerful than buyers at that level. This makes it likely the market will make a downside breakout with a target projected to 3,500.

Counter-view: The intermediate downtrend has been in force since mid-July when the market hit a peak of 4,650. Since then, it’s been lower highs and lower lows. After six weeks, the downwards momentum may ease, though this is unlikely in a long-term bear market. If the market does trade up but it will run into resistance between 4,000-4,150. A serious recovery is most likely closer to settlement when short covering would be present.

Bulls & bears: Metals were among the worst performing sectors in a week when around 1,000 stocks touched their respective 52-week lows. Tata Steel, Sterlite, Sail, Nalco, Jindal and Hindalco all did badly. Banks saw wild swings after ICICI was the target of rumours of bankruptcy and other bank stocks also saw selling followed by recovery. The Bank Nifty eventually lost just 0.6 per cent.

FMCG majors like HUL, ITC and Colgate held their ground. Pharma stocks such as Dr Reddy’s, Sun Pharma and Lupin did well and even Ranbaxy looked to have bottomed. Real estate and other rate sensitive stocks such as automobiles, financial institutions and NBFCs generally lost ground.

However two-wheelers like TVS and Hero Honda did much better than four wheelers. The IT industry continues to suffer from fears of US recession and the CNX IT lost 3.3 per cent. The trader’s choices next week vary from shorts, to stocks that may be bottoming, to the odd defensive holding.

Hind Unilever
Current Price: Rs 256.7
Target Price: Rs 265

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Despite a reduction in trading volumes, HUL has held its price gains in a weak market. It may have completed a breakout when it closed above Rs 255. The stock has a potential upside till Rs 265 and a downside till around the Rs 245 levels. Keep a stop at Rs 250 and go long.

ICICI Bank
Current Price: Rs 504.35
Target Price: Rs 550

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The stock saw amazing gyrations between a low of Rs 460 and a high of Rs 565 as it generated high volumes. It has support close to the current price and is most likely to settle into range trading between Rs 500 and Rs 560. Keep a stop at Rs 495 and go long, intending to book profits above Rs 545. If Rs 495 is broken, the next support is Rs 480.

Lupin
Current Price: Rs 770.2Target Price: Rs 810

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The stock has made an upwards breakout on a volume expansion. It faces resistance between Rs 770 - Rs 780 and it has a possible upside till the Rs 810 levels. Keep a stop at Rs 760 and go long. Be prepared to wait up to 10 sessions while it traverses Rs 770 - Rs 780.

Tata Steel
Current Price: Rs 393
Target Price: Rs 380

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The stock has made a downside breakout on heavy volumes. It has a target projection of Rs 380 and this may be exceeded due to high volume. However, any pullback is likely to lead to a bounce till the Rs 420 levels so, there are risks involved in going short. Keep a stop at Rs 400 and go short. Book partial profits at Rs 380. If the Rs 400 stop is broken, go long with a target of Rs 420 and a stop at Rs 395.

TVS Motor
Current Price: Rs 35.65
Target Price: Rs 42
The stock is testing resistance at Rs 36 and if it closes above Rs 36.5, it is likely to have a target of Rs 42. Volumes have been on the high side, which is a good sign in a breakout situation. Keep a stop at Rs 34.5 and go long. Increase the position between Rs 36.5 and Rs 37.5.
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INVESTOR GUIDE frm ET

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Source: Economic Times, Business standard.