Market poised at 2,850 support

MACRO TECHNICALS

The market crashed in the lead up to the last settlement of the year. The Nifty closed at 2,857 points, down 7.15 per cent while the Sensex dropped 7.6 per cent to close at 9,328.9 points. The Defty was down 9.65 per cent as the rupee slid on FII selling.

The background signals were negative. Breadth was poor with advances far out-numbered by declines. The drop in volumes was another bearish signal. The BSE 500 lost 6.6 per cent and all the other key indices, such as the Junior, CNXIT, Midcaps-50 and BankNifty also saw substantial losses. FIIs were big sellers on all four sessions and FIs didn’t buy enough to hold the balance.

<B>Outlook:</B> There are two possibilities next week. One is that the market will fall, breaking strong support at 2,850 and slide back into range-trading between 2,600-2,850. The other is a bounce next week that leads it to test resistance at 3,100-levels. The first possibility seems more likely.

<B>Rationale:</B> There’s a clearly defined support at 2,850 and lower down, all the way till 2,500. There’s clearly defined resistance all the way till 3,100 which was hit twice in the last fortnight. Low volumes and poor momentum signals make a downside break look likely.

<B>Counter-view:</B> The market looks anaemic in volume terms and the January carryover was low. This indicates disinterest. On balance, a decline is more likely than an advance. But there could be a volume pickup with New Year and if the FIIs return with a positive attitude, the market could test 3,100 or a move beyond that.

<B>Bulls & bears:</B> The interesting aspect of the past three weeks has been breadth. On the upturn and breakout, advances vastly outnumbered declines, on the downturn, declines vastly outnumbered advances. So don’t expect to find counter-cyclicals easily.

Trading focus is going to shift soon to Q3 results but another strong theme is interest rates and rate-sensitives. Banks were among the biggest losers last week and they could be in the forefront of any comeback. Automobiles and real-estate stocks also took a hammering.

If rate cuts come into the picture, these stocks will reverse direction. Apart from rate-sensitive stocks, falling crude prices has led to a revival of trading interest in oil refining and marketing counters. Apart from the PSUs, private sector stocks like RPL and RNRL may also see volumes.

<B><font color="#990000">MICRO TECHNICALS</font></B>

<B>DLF</B><BR>
Current Price : Rs 275<BR>
Target Price: Rs 255<HR>

The stock has seen a selloff that started at a recent peak of Rs 315. There is a little support at current levels but if that is broken, the next reliable support is at Rs 250- Rs 255. Keep a stop at Rs 280 and go short. Add to the position if DLF closes below Rs 273. Clear the position at Rs 255. 

<B>ESSAR OIL</B><BR>
Current Price : Rs 83<BR>
Target Price: Rs 94<HR>

The stock has dropped to levels where it seems to have reasonable support. If it has bottomed out, the next movement is likely to be an upsurge till the Rs 93- Rs 95 levels. Keep a stop at Rs 81 and go long. Cover above Rs 92.

<B>HDFC BANK</B><BR>
Current Price: Rs 972<BR>
Target Price: Rs 1,025<HR>

The stock seems to have been sold down till it hit good support.  On short-covering or a generic recovery, it has an upside till the Rs 1,025 levels. Keep a stop at Rs 965 and go long. Cover above Rs 1,020. If there is a rate cut, it may jump till Rs 1,050.

<B>INFOSYS</B><BR>
Current Price: Rs 1,109<BR>
Target Price: NA<HR>

The stock is at a key support. If it drops below Rs 1,100, it could fall till Rs 1,000. However, a recovery could take it back till around Rs 1,185. 

<B>MARUTI</B><BR>
Current Price: Rs 510<BR>
Target Price: Rs 540<HR>
 
The stock is trading sideways through a fairly wide range. It has support at Rs 500 and then at Rs 480. It has an upside till around Rs 540. Use the current price as a pivot. If the stock opens weak on Monday and moves below Rs 500, go short with a target of Rs 480. If it opens higher than Rs 515, go long with a target of Rs 535-540.