Intermediate downtrend confirmed

Intermediate downtrend confirmed

Prices slid through last week in a series of high volume, high volatility sessions. The Nifty hit a low of 4,766 points before making a partial recovery to 4,882.05, for a week-on-week loss of 3.05 per cent. The Sensex closed at 16,357.96 points for a loss of 2.98 per cent. The Defty lost 4.8 per cent as the rupee lost significant ground.

All the signals were negative. Breadth was dangerous – declines outnumbered advances by several multiples. The slide came on high volumes, even allowing for settlement considerations, this was a danger signal. Although domestic institutions bought over Rs 5,000 crore net, FIIs sold over Rs 6,000 crore. The BSE 500 was down 3.3 per cent.

Outlook: The market has probably moved into an intermediate downtrend in the past 15 sessions and is therefore, likely to see more losses. There is support between 4,750 and 4,800 but if this reading is correct, the market is likely to slide till around 4,650 levels. If it breaks 4,650, the long-term trend could be threatened.

Rationale: The peak of 5,310 on January 6th was the top of the last intermediate uptrend so this is week three of the new intermediate downtrend. The low of 4,766 on Friday established a new pattern of lower lows. There is key support at 4,650, where the 200-Day moving average is trending.

Counter-view: While intermediate trends can last up to 12-14 weeks, they can also exhaust quickly if they are running counter to the long-term trend. This is the case here, assuming the long-term trend hasn't reversed. So, there is a chance the intermediate trend will exhaust soon. If the 4,650 level holds, all is well. On the upside, the market needs to break past resistance at 4,950 to suggest a new intermediate uptrend. This would only be confirmed if it hits a new high beyond 5,310.

Bulls and Bears: Most sectors took a hammering. Metals, real estate and IT were among the weakest performers. The Bank Nifty lost 5.3 per cent at its low on Friday before bouncing dramatically to close only 1.4 percent down. It is too soon to say if this relief rally, post the RBI policy announcement will continue but quite a few bank stocks look bullish. The best long positions would probably be in Axis, Yes and Bank of Baroda.

In the IT sector, almost every counter went down with Wipro looking especially weak. The sector could recover next week if the rupee stays weak and the FIIs stop targeting it for sales. The selling is likely to continue in both metals and real estate. There could be some defensive investments occurring in pharmaceutical and FMCG and a relief rally is also possible in auto stocks. The engineering and construction sector appears to be another source of weakness with L&T, IVRCL and Punj Lloyd seeing heavy sales. However, there is some investment in power sector equipment with Suzlon, Bhel and Siemens looking good.

MICRO TECHNICALS

BHEL
Current Price: Rs 2,405.00
Target Price: Rs 2,525.00

The stock is consolidating on high volumes and testing resistance at around Rs 2,420-2,435. If it closes above Rs 2,435, it will probably hit Rs 2,525. Keep a stop at Rs 2,390 and go long. Increase the position above Rs 2,435 and move the stop up till Rs 2,425. Clear the position above Rs 2,520.

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MAHINDRA & MAHINDRA
Current Price: Rs 1,017.55
Target Price: Rs 1,080.00

The stock has landed on good support after taking a hammering. It has the potential to recover till around the Rs 1,080-1,090 mark. Keep a stop at Rs 1,000 and go long. Cover partially at Rs 1,050 and move the stop up till Rs 1,050. Hold the rest of the position till Rs 1,080 plus.

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PETRONET
Current Price: Rs 78.70
Target Price: Rs 84

The stock has consolidated on good support and is starting to move up on high volumes. It is likely to test Rs 84 on the next up move and may go further. Keep a stop at Rs 75 and go long. Book partial profits above Rs 83 and hold the remain-ing position with the stop up at Rs 80.

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TATA STEEL
Current Price: Rs 559.00
Target Price: 550.00

The stock has taken a hammering that has pushed it down to reasonable support. However, it has a downside till at least Rs 550 level and it could consolidate between Rs 550 and Rs 575 for a while. Keep a stop at Rs 575 and go short. Cover between Rs 550 and Rs 555.

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WIPRO
Current Price: Rs 647.95
Target Price: Rs 610.00

The stock has broken a key support on high volumes. It is likely to slide till around the Rs 630 mark at least and there is a possibility that it will fall further, till around the Rs 610 mark. Keep a stop at Rs 655 and go short. Book partial profits at Rs 630 and reset the stop till Rs 635. Clear the position at Rs 610.

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Src: ET, Business-Standard, DP blog etc