Support at 4,350 will be tested

MACRO TECHNICALS

Expect high intra day volatility, resistance at 4,450-4,500 on the upside.

The range-trading pattern broke with a downside breakout on Thursday ahead of the long weekend. The Nifty closed at 4,430.7 points, for a loss of 2.18 per cent. The Sensex closed down 2.92 per cent at 14,724 points. The Defty was down 3.92 per cent as the rupee lost ground.

The FIIs remained net sellers while domestic institutions were token net buyers in the first two sessions of the week. Trading volumes remained good but tapered off with the downside breakout. The advances-declines ratio was negative. The Junior lost 3.91 per cent while the Midcaps 50 lost 2.55 per cent and the broad BSE 500 lost 2.38 per cent.

Outlook: The downside breakout has a target of around 4,300 so the market should fall further in the early sessions of next week. The intermediate trend may still be positive, however, and there is a chance of recovery from the 4,300 level.

On the upside 4,450-4,500 will be a strong resistance. Whatever the direction, volatility will remain high and there will be big intra-day movements.

Rationale: The market saw several sessions of range-trading between 4,500-4,650 and in the process, it completed another sequence of higher tops on Tuesday. The intermediate trend may therefore, still be positive and we have calculated that earlier as having the potential to test 4,750. The downside breakout has a target projection between 4,300-4,350.

Counter-view: The long-term trend remains clearly negative. The intermediate has been positive for 4 weeks plus. It’s possible that the intra-day high of 4,649 on Tuesday was the peak of the intermediate trend and this is the first week of an intermediate trend reversal. This would be confirmed if the market fell below 4,300.

Bulls & bears: Almost all stocks lost ground on Thursday and most stocks delivered negative returns over the week. Banks were especially hard-hit with the BankNifty down 6.5 per cent. Every banking major and NBFC lost ground with Bank of Baroda, PNB, HDFC Bank, ICICI, SBI, Reliance Capital, HDFC and even FIs such as IFCI, PFC, etc bore the brunt.

Automobiles also saw massive sell-offs with Hero Honda and Maruti doing especially badly. In contrast, IT did well enough, with the CNXIT losing a nominal 0.2 per cent and biggies like Infosys and TCS developing promising pricelines towards the weekend.

Apart from this, the trend was generally negative with isolated stocks holding their ground or moving up while the vast majority moved down.

MICRO TECHNICALS

Bhel
Current Price: Rs 1,707.8
Target Price: Rs 1,650 The stock has moved near a key support. If it closes below 1,690, it could hit 1,650. It’s seeing a lot of volatility so Rs 1,690 is very likely to be tested and broken on Monday itself. Keep a stop at Rs 1,720 and go short. Add to the position if Bhel closes below Rs 1,690.

Aurobindo Pharma
Current Price: Rs 311
Target Price: The stock has held its ground in a bearish week. It’s testing resistance at around the current price and just above. If it closes above Rs 315, it will have a clear run till Rs 330. Keep a stop at Rs 300 and go long.

Colgate Palmolive
Current Price: Rs 421.85
Target Price: Rs 435 The stock has held at a key support although it has seen volume dropping. It has the potential to climb back till Rs 435. Keep a stop at Rs 415 and go long. Book partial profits at Rs 435 and keep a small long position. There is a chance that Colgate will go all the way back to Rs 450.

Polaris Software
Current Price: Rs 108.8
Target Price: Rs 130 The stock shot up with a volume expansion. It has strong resistance at the Rs 110 level but it also has a lot of volume backing the move. Keep a stop at Rs 103 and go long. If the stock closes above Rs 112, it is likely to move into the range of Rs 130.

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