Outlook: The short term trend is bearish and the Nifty is likely to test 4,950 again at the very least. If it falls below 4,950, it could hit 4,800. Expect high daily volatility and high volumes as well since this is settlement week. The daily range could be 150 points.
Rationale: The market made a decisive downside breakout when it closed below 5,150 on Thursday – the breakout was confirmed by volume expansion. That drop set up a likely target of 4,950, which was fulfilled intra-day on Friday. If support at 4,950 is broken, the next reliable support is 4,800. If the market falls below 4800, an intermediate trend reversal would be confirmed.
Counter-view: In terms of time, an intermediate uptrend has been in force since end-November. A trend reversal would be quite likely and in that case, the market could dip till it hits support in the range of 4,750-4,700. The other possibility is that short-covering close to settlement could trigger a sharp recovery that pulls the market back above 5,180. That would be a positive signal but it would need to be backed by breadth (positive advance-decline lines) and strong volume action to make it valid.
Bulls & bears: This is results season so action will always be somewhat stock-specific. Reliance and Airtel did well on good results while L&T saw selling after it posted poor results. In fact, most major sectors saw heavy selling. The CNXIT lost a lot of ground despite the weaker rupee – Tech Mahindra was the only remotely bullish stock by Friday’s close. TCS, Wipro and Infosys were all looking weak.
Financials were also down with the Bank Nifty losing somewhat less than the market but most bank stocks closed bearish. Pressure on bank stocks could intensify next week. Metals, real estate and engineering-construction counters were sold heavily. If a quick recovery occurs in these sectors, it will be due to a combination of short covering and carryover buying. FMCG companies such as ITC and HUL saw some defensive buying. Some PSUs like REC and Concor could also see speculative buying in the hope of an IPO or FPO. A couple of auto and auto ancillary stocks could also move against the overall trend.
MICRO TECHNICALS
Hindustan Unilever
Current Price: Rs 257.95
Target Price: Rs 270
The stock is resting on good support between Rs 250-257. It has the potential to climb till Rs 266-270 at least since it’s perceived as a good defensive holding during bearish phases. Keep a stop at Rs 252 and go long. Start booking profits above Rs 266.
Reliance Industries
Current Price: Rs 1,053
Target Price: Rs 950
The stock is very delicately poised at support between Rs 1,030-1,050. If it closes below Rs 1,030, it could drop till around the Rs 950 level. Keep a stop at Rs 1,070 and go short. Increase the position between Rs 1,030. Book profits below Rs 970.
Unitech
Current Price: Rs 79.35
Target Price: Rs 72
The stock has been testing support between Rs 77-80. If it closes below Rs 77, it is likely to drop till around Rs 72. Keep a stop at Rs 82 and go short. Increase the position below Rs 77. Start booking profits at around Rs 73-74.
Shree Renuka
Current Price: Rs 220.95
Target Price: NA
The stock is consolidating close to a recent low. If the support between Rs 215-220 holds, it has the potential to recover till around the Rs 240 levels. Keep a stop at Rs 215 and go long. Book partial profits at Rs 230 and clear the position at Rs 240.
Punj Lloyd
Current Price: Rs 186.10
Target Price: Rs 170
The stock has made a downside breakout on high volumes. It’s likely to fall till the Rs 179 level at least and it may slide till around Rs 170. Keep a stop at Rs 190 and go long. Book partial profits at Rs 179 and revise the stop to Rs 180.
(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.
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