Week Ahead: Nifty may seek support at 4200 : BS

Week Ahead: Nifty may seek support at 4200


Inflation spiking to double-digits led to a market crash. The Nifty ended down 3.75 per cent, closing at 4347.5 points, which is a 10-month low. The Sensex was down 4.07 per cent closing at 14571. The Defty was down 3.83 per cent with the rupee dropping to 42.97.

The rupee fall was precipitated by the continuation of heavy sales from the FIIs. Domestic institutions were also sellers. Breadth signals were terrible with advances heavily outnumbered by declines. Volumes were low. The Junior was down 4.03 per cent while the BSE 500 lost 3.64 per cent.
Outlook: The Nifty is likely to seek support at around 4200 before it attempts a substantial recovery. The upside is likely to be capped by resistance at 4600-4650 level. Settlement considerations may cause extra volatility and lead to a temporary improvement on short-covering. Rationale: On Friday, the market broke key supports. This was a low-volume breakout but the minimum target projections would be about 4200. There is fairly good support at that level. Short-covering could cause some recovery during next week but the market is clearly in an intermediate downtrend (7 weeks and counting) that could get worse.
Counter-view: It would take a very strong trigger in the form of good news to lift the market now. Technically speaking, we would need a high-volume recovery that pushed the market beyond 4650 to break the pattern of an intermediate downtrend. Perhaps the nuclear deal would do it?
Bulls & Bears: Any bullishness next week is liable to arise on the basis of short covering and liable to terminate at around Thursday June 19th levels. Banks for example, have been very hard-hit and there could be candidates here.
IT is another possibility because of the falling rupee and the cushion it offers. Oil exploration is a third segment. But the vast majority of stocks have emulated the index in that they have made clear downside breakouts. Despite settlement considerations, the prudent trader would be advised to stay on the short side of the market or to stay out.
Among the most badly hit sectors are real estate, housing finance stocks, construction companies and automobiles. No surprises here since these are all rate-sensitive and driven by consumer sentiment.
Metals also did badly last week and telecom service providers also saw massive sell offs. The Reliance and ADAG groups both did badly – I suspect this is more due to excessively leveraged positions being sold off.
These are the places shorters should be focussed on. Due to settlement, you may need to carryover positions or to open them in July futures to start with.

MICRO TECHNICALS
Corporation Bank Current price: Rs 284Target price: Rs 300
The stock lost an extraordinary 10 per cent plus on Friday on very low volumes. It has pretty much fulfilled its target on a downside breakout in one freak session. There is a good possibility that it will recover on short covering till about Rs 300. keep a stop at Rs 280 and go long, cover at Rs 295-plus. If the Rs 280 stop is broken, the downside target would be Rs 270.

HOECCurrent price: Rs 127Target price: Rs 135
The stock is range-trading between Rs 125-135 and it hit the bottom end of the range on Friday before making a small recovery. It may be worth a long position on the expectation that it will go back towards the top of the range. Go long with a stop at Rs 125 and cover above Rs 134.

IFCICurrent price: Rs 50Target price: Rs 45
The stock finally made a downside breakout after several weeks of threatening to collapse. It has a target projection in the region of Rs 45 and it could exceed that given its previous history of developing powerful trends. Keep a stop at Rs 52 and go short. Cover at about Rs 46.

Naukri Current price: Rs 999Target price: Rs 1,055
One of very few stocks that held its own on Friday. In fact, it generated strong volumes along with a price-rise. There's a big resistance at the current level and all the way till Rs 1,015. However if it closes above Rs 1,015, it's likely to go till Rs 1,055. Keep a stop at Rs 990 and go long. Book partial profits at Rs 1,015.

Reliance Industries Current price: Rs 2,099Target price: Rs 2,025
RIL smashed a key support at Rs 2,150 and dropped on heavy volumes with a high delivery ratio of 44 per cent. There is reasonable support at Rs 2,070 but there is also a target of Rs 2,025. In the circumstances, that target is likely to be fulfilled. RIL may swing between Rs 2,025-2,150 in the next four sessions. Keep a stop at Rs 2,125 and go short, covering at Rs 2,025.

(The target price and projected movements given above are in terms of the next five trading sessions unless otherwise stated.)


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