Morning Calls

Short covering triggers rally

The market saw a technical pullback via short-covering ahead of a long weekend. The Nifty, which slid to a 2010 low of 4,675 points on Monday, closed at 4,826.85 for a week-on-week gain of 2.4 per cent. The Sensex closed at 16,152 for an identical gain. The Defty rose by 2.7 per cent as the rupee rallied from lower levels. Breadth was good with advances outnumbering declines for the week. However, volumes were low. The FIIs were heavy net sellers, counter-balanced to some degree by moderate domestic institutional buying. The BSE500 was up 2.4 per cent while Midcaps underperformed the major indices, rising only 1.8 per cent.

Outlook: The rally appears to have come on short-covering. There is significant resistance at 4,850 and if the FII attitude doesn’t reverse, there is every chance next week will open weak. On the downside, support between 4,650 and 4,700 remains crucial. On the upside, if 4,850 is broken, a rally till 5,000 is possible.

Rationale: A sharp jump on low volumes ahead of a weekend is characteristic of a short-covering rally. The market would need significant volume expansion to cross 4,850. If it does so, a move past 4,950 would suggest an end to the intermediate downtrend, which has lasted five weeks so far.

Counter-view: Most likely, shorts will be renewed and push the market down to the strong support in the 4,650-4,700 range, followed by range-trading between 4,650 and 4,850. But a dip below 4,650, and especially a close below 4,650, would be a serious danger signal. That would be a Southwards breach of the 200 Day Moving Average, which is between 4,660 (exponential) and 4,684 (simple), and perhaps, the beginning of a new bear market.

Bulls & Bears: The CNXIT index continued to outperform the overall market, gaining 3.6 per cent. The move here was sector-wide. The banking (and financials) sector underperformed, with the Bank Nifty gaining only 1.9 per cent.

Real estate saw a late rally, which could fizzle out soon. Metals saw short-covering, which may continue for a couple more sessions. Sugar and cement scrips also saw a rally as did auto-stocks and in all three cases, there could be a little upside. Oil production and exploration scrips saw speculative investments. In most cases, the rise came on low volumes and clearly seemed to be short-covering or buybacks following sales against delivery. However, a lot of stocks have consolidated at lower levels before moving up.

MICRO TECHNICALS

HIND OIL EXPLORATION
Current Price: Rs 269.95
Target Price: Rs 290

The stock jumped from Rs 229 to current levels in one session on massive volume expansion. This is an unusual, difficult to read pattern. On volumes alone, there should be an upside till Rs 290. Keep a stop at Rs 263 and go long. Raise the stop by 5 units for every 5-unit rise. Book at least 50 per cent profit at Rs 290.

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SESA GOA
Current Price: Rs 382.70
Target Price: Rs 405

The stock has rebounded from decent support between Rs 355 and Rs 365 to current levels. Volumes are average. If it can close above Rs 385, it has the potential to reach Rs 405. Keep a stop at Rs 375 and go long. Add to the position above Rs 385. Book profits at Rs 405.

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ORIENTAL BANK
Current Price: Rs 274
Target Price: Rs 255

The stock has shown volume expansion and a lot of volatility, while ranging between Rs 250 and Rs 290 in the past few sessions. It is likely to see a downside in the next week, till at least Rs 265 level and maybe till Rs 255. Keep a stop at Rs 280 and go short. Cover 50 per cent of the position at Rs 265 and reset the stop till Rs 270.

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JP ASSOCIATES
Current Price: Rs 132.65
Target Price: Rs 140

The stock has bottomed out close to the current levels and it may be set for another up move. A technical recovery to the Rs 140 level is possible. Keep a stop at Rs 130 and go long. Volumes are not great. So a move past resistance at Rs 140 is unlikely.

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UNITECH
Current Price: Rs 74.80
Target Price: Rs 70

Short-covering has pulled the stock up but this looks like temporary relief. Another selloff next week could push the stock back till support at Rs 70. Keep a stop at Rs 77 and short. Cover 50 per cent of the position at Rs 72 and clear the rest at Rs 70.

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Src: ET, Business-Standard, DP Blog and etc