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| Key resistance at 4,450 |
| Devangshu Datta / New Delhi Jul 20, 2009, 00:55 IST |
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The markets are likely to range-trade between 4,150-4,450
A surge on Friday helped the market pull back considerably from the intra-week lows of 3,918 on Monday. The Nifty eventually closed at 4,374.95 points for a week-on-week gain of 9.27 per cent. The Sensex was up 9.19 per cent at 14,744 points. The Defty gained 9.58 per cent as the rupee hardened slightly.
Volumes were high, in both cash and derivatives segments. The advances-declines ratio was positive as well. The BSE 500 gained 8.96 per cent while the Midcaps-50 gained 8 per cent. Both banks and the IT sector outperformed the overall market. FIIs were marginal net sellers while the DIIs continued to be strong buyers.
Outlook: The market is testing resistance at 4,400-4,450. If it does close above 4,450, we would have reason to hope that the five-week correction that began in mid-June is over though that would not be confirmed until and unless the Nifty crosses 4,693. More likely, it will range trade between 4,150-4,450.
Rationale: The intermediate correction could be over. It lasted five weeks which is reasonable and it constituted a pullback of 16.7 per cent from the peak (4,793) and a retracement of 32 per cent in Fibonacci terms. Also the falling trendline established by joining successively lower peaks since June 12 (2009 high of 4,693) was broken last week. A confirmation would require a higher peak.
Counter-view: Intermediate corrections can last up to 12 weeks. If the correction is not over, a period of range-trading between 4,150-4,450 will most likely result. Range-trading is likely to happen unless the FIIs change their attitude – most bullish phases involve net buying from both sets of institutional investors. The danger signal would be if the market dropped below 4,150 again. That would lead to an intensified downturn.
Bulls & bears: Banks and financials led the bounce. This is not surprising because the Bank Nifty generally outperforms the overall market whatever the trend. Non-banking stocks like IDFC, IDBI, IFCI also saw recovery while ICICI and DCB led the bank sector. There's resurging interest in brokerages like India Infoline and India Bulls.
Real estate generally rides on the coat-tails of financials and there was a recovery of sorts across the majors. Surprisingly, IT stocks also did well despite a hardening rupee. This may be due to upgraded guidances but volumes were on the low side except for Satyam and NIIT. While Sterlite took a hammering, other metal stocks did reasonably well and were heavily traded.
MICRO TECHNICALS
INDIA INFOLINE
Current Price: Rs 132
Target Price: Rs 150
The stock has cleared resistance at Rs 131 on high volumes. It has a target projection of Rs 150 and not too much resistance in-between. Keep a stop at Rs 130 and go long. Add to the position above Rs 140 because it will have cleared another resistance at that level.
GVK POWER AND INFRA
Current Price: Rs 42.3
Target Price: Rs 46
The stock has climbed above a stiff resistance at Rs 40 and its broken a falling trendline that indicates it may have seen a trend reversal. Volumes have been average. If the pattern holds, there's an upside till Rs 46-Rs 47 with some resistance at Rs 43.5. Keep a stop at Rs 41 and go long.
SATYAM COMPUTER
Current Price: Rs 89.3
Target Price: NA
The stock has completed a bullish saucer formation. It has a projected target of Rs 91 which is almost fulfilled. SCS could traverse an indeterminate distance between Rs 90-Rs 125, where there is a gap due to the scam-related crash. Keep a trailing stop at Rs 85 and go long. Move the stop up 5 points for every 5 point rise.
ICICI BANK
Current Price: Rs 743
Target Price: Rs 755
The stock will hit heavy resistance above Rs 750. If it closes above Rs 755, it has a target of Rs 825. Go long with a stop at Rs 735, book partial profits at Rs 755. If ICICI closes above Rs 755, renew the long position with a trailing stop at Rs 755. If it breaks the original Rs 735 stop-loss, go short with a target of Rs 700.
PETRONET LNG
Current Price: Rs 72.3
Target Price: Rs 80
The stock has shot up on high volumes. It's hitting resistance between Rs 73- Rs 75. It is likely to clear that and test another resistance at Rs 80. Keep a stop at Rs 69.5 and go long. Add to the position above Rs 75. Consider booking only partial profits at Rs 80.
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