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| Multiple tops suggest short-term correction |
| Devangshu Datta / New Delhi Nov 16, 2009, 00:32 IST |
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In the past three sessions, the market has tested 5,015 and pulled back.
The market made net gains before running into strong resistance. The Nifty closed at 4,998.95 points for a gain of 4.2 per cent while the Sensex was up 4.3 per cent at 16,848 points. The Defty gained 5.1 per cent as the rupee strengthened again.
Both sets of institutional investors were net buyers through the past week. Advances outnumbered declines and volumes were good in both cash and derivatives segment. The BSE 500 rose 3.9 per cent suggesting good retail participation.
Outlook: The market faces massive resistance above 5,000 and it failed to pierce that last week. The pattern suggests short-term bearishness, or range-trading, with the Nifty moving between 4,850-5,050. A breakout in either direction would lead to a move of 150-200 points. The intermediate trend is unclear.
Rationale: In the past three sessions, the market has tested 5,015 and pulled back. Multiple tops have bearish short-term implications. There's solid support down to 4,850 and further down, till 4,700. On the upside, a breakout above 5,050 could push the market to a new 2009 high.
The intermediate trend went negative on October 20, reacting from the peak of 5,181. It bottomed on November 3 at a low of 4,538 and has since moved back to 5,000 levels. The 13.5 per cent pull back is ample in dimensions but the time period of barely two weeks is very short. The current range-trading could breakout in either direction.
Counterview: If the market stays above 4,538 in the next correction, the pattern would be higher lows and positive. A strongly bullish long-term trend has been in force since March and this makes it possible that a 2-3 week correction period is enough. A pattern of higher highs above 5,181 would confirm that the intermediate trend has gone bullish again.
Bulls & bears: The IT sector was surprisingly strong despite the rupee rising to 46.5. The CNXIT jumped 6.1 per cent. A reaction was seen on Friday in Educomp and Satyam but Moser Baer and TCS looked strong. Banks also bounced back with the Bank Nifty up 4.9 per cent.
Metals were another group that did reasonably well with both ferrous and non-ferrous stocks being strongly supported. Sugar continued its bull run with less fancied counters like Dhampur in the limelight.
Real estate continued to look weak though most real estate are sitting near good supports and some may be due for a revival. Many PSUs such as Neyveli Lignite Corporation, NMDC, SCI and GAIL saw volume expansions and price increases. Two depressed cyclical sectors - automobiles and shipping - also saw selective buying interest.
MICRO TECHNICALS
IDFC
Current Price: Rs 171.25
Target Price: Rs 180
The stock has made a breakout to a new high on increased volumes. On the basis of the chart pattern, it has a target projection of around Rs 180-185. There's no price history in this zone so error margins are more. Keep a trailing stop at Rs 165 and go long. Move the stop up 5 points for every Rs 5 rise.
IVRCL
Current Price: Rs 410.5
Target Price: Rs 430
The stock has made an upside breakout on high volumes and it is testing resistance close to its 2009 highs. It has the potential to cross Rs 430 and create a new high if the volume pattern is maintained. Keep a stop between Rs 400-405 and go long. Increase the position above Rs 420.
PARSVNATH DEVELOPERS
Current Price: Rs 116.75
Target Price: Rs 100
The stock has made a recovery from a recent low of Rs 92. However, it is now running into high resistance. It could react again and go into a range-trading pattern between support at Rs 100 and resistance at Rs 120. Keep a stop at Rs 120 and go short. Increase the position below Rs 112 and clear the position below Rs 102.
SAIL
Current Price: Rs 182.3
Target Price: Rs 195
The stock has made a small breakout past resistance at Rs 180. It could test the 2009 highs of Rs 195-197 at least on intra-day basis since there is little resistance in-between. Keep a stop at Rs 180 and go long. Start covering the position above Rs 193.
SHIPPING CORPORATION
Current Price: Rs 145.9
Target Price: Rs 170
The stock is testing resistance at Rs 150 and if it closes above that mark, a target of Rs 170 is possible. Keep a trailing stop at Rs 140 and go long. Increase the position above Rs 150 and move the stop loss up to Rs 145. At Rs 160, book 50 per cent profit and move the stop loss to Rs 155.
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