Intermediate uptrend confirmed

MACRO TECHNICALS

Good downside support at 4,450 and a possible upside target of 4,750.

The market ended with net gains after three sessions, which saw massive intra-day ranges and little net movement.

The Nifty was up 2.63 per cent week-on-week with a closing value of 4529.5 points. The Sensex gained 3.49 per cent to close at 15,167. The Defty was down 3.24 per cent as the rupee strengthened.

Advance decline ratios were positive and volumes were high in cash and F&O markets, though they tapered on the weekend. The broad BSE 500 was up 3.6 per cent and the Junior rose 4.2 per cent while the Midcaps-50 was up 3.8 per cent. The FIIs were net buyers this week while the domestic funds were net sellers. Most of the action was driven by operators and retail.

Outlook: The market is clearly in an intermediate uptrend but unable to penetrate resistance above 4,550. There is good downside support at 4,450 and a possible upside target of 4,750. Expect range-trading next week with a possible pullback till the 4,350 level and an upside till around 4,650.

Rationale: There is a pattern of higher tops, which indicates an intermediate uptrend has been in force since July 16, when the Nifty bottomed at 3,790. We’ve seen range-trading between 4,450-4,620 following a breakout with a target of about 4,750.

The short-term range-trading is more likely to terminate with an upwards breakout given the bullish intermediate trend. The upside is capped by resistance near the 200DMA, which is at a value of about 4,740.

Counter-view: High intra-day volatility and high VIX readings indicate dangerous under-currents. Tepid institutional support could also be a negative factor, given that it’s still a long-term bear market. On balance however, net gains till end-August look likely.

Bulls & Bears: Banks and other rate sensitive stocks bounced despite the repo hike. The Bank Nifty rose over 8 per cent mainly on the back of strong buying in private banks such as HDFC Bank, ICICI and Kotak.

Automobile majors such as Maruti and Tata Motors did well. Sugar was another bullish sector but it went off the boil towards the weekend. Telecom stocks saw mixed action after the 3G policy and the BSNL IPO were announced.

Pharma looked strong with Cipla, Divi’s Lab and Dr Reddy’s being the counters favoured by bulls. Towards the weekend, engineering stocks like L&T and equipment providers such as ABB, Suzlon, AIA Engineering did well.

Other than this, bulls also made scattered investment in Hind Oil Exploration, ONGC, Pantaloon Retail, Shipping Corp and Sterlite.

MICRO TECHNICALS

Cipla
Current Price: Rs 235.05
Target Price: Rs 260

The price has moved from Rs 220 on high volumes, especially on Friday. The stock is close to a high. If it closes above Rs 240, it will set up a target of Rs 260-plus. Keep a stop at Rs 229 and go long. Add to the position if it closes above Rs 240.

Larsen & Toubro
Current Price: Rs 2,836.35
Target Price: Rs 3,150 (long term)

The stock is testing resistance at Rs 2,850. It will need to develop volumes to beat that resistance. If L&T does manage to close above Rs 2,850, it would have a target of Rs 3,150. May therefore be worth accumulating with a 10-session perspective and a stop loss at Rs 2,750. Be wary of a sudden rise in volatility.

ONGC
Current Price: Rs 1,063.9
Target Price: Rs 1,120

The stock seems to have made an upwards breakout without volume expansion. It has a target of about Rs 1,120. Keep a stop at Rs 1045 and go long. There will be some resistance at the Rs 1,075 - Rs 1,080 mark. If that is cleared, there will be smooth running.

Pantaloon Retail
Current Price: Rs 397.55
Target Price: Rs 420

The stock made an upside breakout and completed a bullish formation when it closed above Rs 390. It has a target projection of about Rs 420 and the chart patterns suggest that it will start running into resistance at above Rs 410. The target is not likely to be fully achieved due to the lack of volume expansion on breakout. Keep a stop at Rs 390 and go long. Start covering above Rs 410.

Suzlon Energy
Current Price: Rs 246.3
Target Price: Rs 290 (long-term)

The stock is testing a key resistance at the Rs 245 – Rs 250 levels. If it closes above Rs 250, it would complete a breakout with the potential to pull the stock till around the Rs 290 levels. It is worth accumulating with a 10-session perspective and a stop at Rs 237. Add to the position if it closes above Rs 250.

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