Volume expansions needed for breakout

MACRO TECHNICALS

The market continues to be range bound with clear resistance above 2,850 and support at 2,500.

The major indices stayed range bound despite the Mumbai attacks. The Nifty closed at 2,714 points for a loss of 1.47 per cent and the Sensex was down 1.4 per cent at 8,965.2 points. Both FIIs and domestic institutions remained net sellers. The Defty lost only 0.84 per cent however, as the rupee recovered a little ground and climbed above 50 again.

Volumes were low and the advance declines ratio was negative by the weekend. The BSE 500 was down 0.51 per cent. Intra-day volatility remained high, but alternating sessions of gains and losses meant that week-on-week change was small. The VIX dropped considerably though it still remained high by historic standards. 

<B>Outlook:</B> The market continues to be range bound with clear resistance above 2,850 and strong support all the way down to 2,500. A breakout in either direction is likely to occur only on a volume expansion. The intermediate trend appears to be neutral at the moment rather than clearly negative.

<B>Rationale:</B> In the last short-term downtrend, the market found support at above 2,500 – well above the previous low of 2,250. The pattern of higher lows suggests the intermediate downtrend is easing. A breakout from the current range-trading pattern would probably lead to a move of about 300 points. However, this is only likely to occur if there is a sharp increase in volumes.

<B>Counter-view:</B> The market is waiting for policy triggers over this weekend. If the anticipated rate cuts come through, there could be a surge in volumes. If that occurs, the upside breakout is more likely. If the market is disappointed, sell offs could occur. Either way, Monday may be a crucial session.

<B>Bulls & Bears:</B> Falling T-Bill yields and anticipated rate cuts led to some speculative buying in bank stocks. At the same time, the stronger rupee meant a fall in IT scrips. These two sectors are liable to see continuous volatility through next week. Banks did see a sell off on Friday so market expectations of rate cuts may have been tempered.

PSU oil companies saw a sell off as well once the price cuts in retail diesel and petrol prices were announced.  Media stocks such as Adlabs, NDTV, Sun TV, TV 18 generated a lot of volumes. Volumes in real estate stocks like DLF, Parasvnath and Unitech were good, but the pricelines were difficult to read for direction. There was some speculative buying in beaten-down auto stocks like Ashok Leyland, Maruti and Tata Motors.

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

<b>CESC</b><br>
Current Price: Rs 233.9<br>
Target Price: Rs 255<hr>

The stock has formed a bullish circle and completed a breakout. Cash volumes are low but futures volumes have risen sharply. The upside could be in the range of Rs 255-265. Keep a stop at Rs 225 and go long. Cover above Rs 255.

<b>NDTV</b><br>
Current Price: Rs 105.85<br>
Target Price: Rs 120<hr>

The stock has shot up on extremely high volumes and it appears to have completed a breakout. The target should be about Rs 120. Keep a stop at Rs 100 and go long. If it closes above Rs 120 it could have the potential to move till Rs 130.

<b>SUZLON</b><br>
Current Price: Rs 42.45<br>
Target Price: Rs 46<hr>

The stock has made a recovery on high volumes after hitting a recent bottom at 36. It has the potential to test resistance between Rs 46 and Rs 48, at least on an intra-day basis. Keep a stop at Rs 40 and go long. Cover above Rs 46.

<b>TATA MOTORS</b><br>
Current Price: Rs 153.15<br>
Target Price: Rs 140<hr>
 
The stock has risen on higher volumes but it appears to be running into very strong resistance at current levels. The next selling spree will push it back towards support at around Rs 140. Keep a stop at Rs 159 and go short. Cover below Rs 142. 
<b>UNITECH</b><br>
Current Price: Rs 30.75<br>
Target Price: Rs 25<hr>

The stock has seen massive volume expansion in the past four or five sessions. However, it has been unable to beat resistance at Rs 32 and above. It is likely to ease back till around the Rs 25 level. Keep a stop at Rs 33 and go short. Cover below Rs 26.