A breach of 4,900 would confirm reversal and the next reliable support is 4,750-4,800
It turned out to be a strange week when the market traded within a narrow range and suffered significant net losses. The Nifty closed at 4,945.2 points for a week-on-week loss of 2.72 per cent. The Sensex was down 2.87 per cent at 16,642. The Defty lost a comparatively lower 0.36 per cent as the rupee hit a record high.
Both domestic institutions and FIIs were net sellers, albeit not in large quantities. Volumes were average but heavily concentrated in larger shares. The Midcaps (up 0.36 per cent), the Junior Nifty (unchanged) and BSE 500 (down 1.8 per cent) outperformed the Nifty-Sensex combination mainly due to lack of trading interest in smaller stocks. The biggest losses came in the IT sector and banks also made net losses.
Outlook: The intermediate trend may have reversed and gone bearish after 12 weeks of trading up. It is testing key support between 4,900-4,950 and if that is broken, the downside would be around 4,750 by end-October. However, if the support at 4,900 holds, a target of 5,200 by end-October could be achievable. The institutional attitude is crucial.
Rationale: Most intermediate trends peter out and reverse within 12 weeks though there are exceptions. Hence, a trend reversal would not be unusual but the Nifty has not yet made a definitive pattern of lower tops and bottoms that confirms reversal. A breach of 4,900 would confirm reversal and the next reliable support is 4,750-4,800.
Counter-view: Most of the gains of the past three months came on the basis of heavy institutional buying. The DIIs bought in July-August and the FIIs bought in August- September. Right now, retail and operator interest is not very high and institutional attitude would clearly define the market trend. If the market holds at 4,900 and moves back above 5,000, it would give new legs to the intermediate uptrend.
Bulls & Bears: Trading is liable to become more stock specific in the next few weeks as Q2 results come into the picture. However, at the moment, there are few outliers. Most stocks are moving in tandem with their industry pattern and most industries are moving in tandem with the major indices. As mentioned above, the CNX IT was down 7.7 per cent on heavy selling. This was mainly driven by a stronger rupee.
The Bank Nifty was also down 1.85 per cent but it did outperform the Nifty. If the rupee continues to rule high, IT shares would probably suffer more losses - the pricelines suggest this is the expectation. Banking stocks are more likely to make a quick recovery. Most key sectors did suffer net losses.
Telecom stocks took a big hammering. Pharma shares, which had looked strong, saw profit-booking while real estate also lost ground.
Oil and refining stocks looked weak by Friday. Auto shares crashed on Friday. Sugar shares were intriguing since they generated high volumes without much price change.
JAIPRAKASH ASSOCIATES Current price: Rs 238.1 Target price: Rs 215
The stock hit resistance above Rs 245 and corrected to Rs 222 before recovering. It's poised on support between Rs 230-235. If the pattern of the past 12 weeks holds, it will surge again. But on a close below Rs 230, it will dip till Rs 210-215. Keep a stop at Rs 244 and short. Increase the position below Rs 230 and book profits below Rs 215.
TCS Current price: Rs 561.75 Target price: Rs 590
The stock has been beaten down from Rs 600 on high volumes in the past three sessions. If the support at Rs 560 breaks, it could fall till Rs 535. However, if the support holds, it could move back till Rs 590. Keep a stop at Rs 555 and go long. Increase the position above Rs 570.
RELIANCE COMMUNICATIONS Current price: Rs 246.55 Target price: Rs 230
Selling on massive volumes has led to a sharp downtrend in all telecom stocks. If the current support at Rs 245 is broken, the next target is Rs 230, with some interim support at Rs 240. Keep a stop at Rs 250 and go short. Increase the position below Rs 239. Cover at Rs 230.
UNITECH Current price: Rs 98.6 Target price: Rs 105
The stock has tested a support between Rs 95-100 through the last three sessions. If the support continues to hold, there should be a rebound till around the Rs 105 level. Keep a stop at Rs 95 and go long. There is a chance that the stock could exceed Rs 105 and move till Rs 110. So, consider booking only partial profits at Rs 105.
TATA MOTORS Current price: Rs 545.65 Target price: Rs 490
The stock crashed from Rs 590 levels on Friday while being traded on high volumes. It is resting on a key support and if it closes below Rs 540, the stock could slide till the Rs 490 mark. Keep a stop at Rs 550 and go short. Increase the position below Rs 540.
Start booking profits below Rs 500.