Closing below 4,150 leads to projections that the Nifty could slip till 3,850, though it has support at current levels.
The market crashed on heavy and continuous selling following the Budget. The Nifty dropped to a low of 3,976 before closing at 4,003.9 points for a massive loss of 9.5 per cent. The Sensex was down 9.45 per cent at 13,504 points. The Defty lost 11.2 per cent as the rupee slid.
FIIs sold over Rs 4,600 crore (net) in the past week and although DIIs remained net buyers, the institutional position was net negative. Volumes were average. Breadth was extremely negative. The Junior lost 9.8 per cent while Midcaps-50 was down 9.9 per cent and the BSE 500 down 9.3 per cent. The Bank Nifty plunged a disproportionate 13.8 per cent while the CNXIT relatively outperformed by losing 3.4 per cent.
Outlook: The market made what looks like a decisive downwards breakout from a trading range. Closing below 4,150 leads to projections that the Nifty could slip till 3,850, though it has support at current levels, and all the way down. Fibonacci retracement calculations also suggest a target between 3,850-3,900.
Rationale: The Budget obviously triggered the burst of selling. However, the market was already in an intermediate downtrend. The 2009 peak came on June 12 at 4,693. Since then, it’s been four weeks of downtrend and a recent low of 3,976. In terms of time, an intermediate correction could last up to another eight weeks but it could also end much sooner.
Counter-view: The four-week downtrend has lost all the gains registered since the election results came through. Technically, there are two possibilities. One is that this is an intermediate correction in a bull market that has been in force since March 2009 (or October 2008 if we assume the consolidation between Oct 2008-March 2009 was bullish given a pattern of higher lows between Oct-March). If so, it should end above the exponential 200 DMA, which is around 3,765 at the moment. Otherwise, this could be a massive reversal, pulling the market back down into bear-territory. So watch the 3,750-level since that is a crucial support.
Bulls and Bears: The post-Budget selling hit every sector. IT had some respite due to the factor of the falling rupee. The major selling focus was on banks and financials, with real estate also under the hammer. Right now, traders should seek two possible types of trades. One is shorts – stocks that look liable to fall further. The second is “covers” – stocks that have hit decent support and appear poised to bounce on short-covering. One point to note is that IT will weaken if the overall market finds support.
The first set is quite large – many stocks have broken key supports or are testing key supports. As and when the Nifty bounces, bank stocks will be a key driver so this could be a focus for traders who want long positions. FMCG stocks have also seen some cautious support in the past couple of sessions. So have PSUs such as PFC, NTPC, MRPL, ONGC, etc, since further disinvestments are expected. Metals like Sail and Sterlite may also be capable of bouncing.
MICRO TECHNICALS
Educomp
Current Price: Rs 3,749
Target Price: Rs 3,400
The stock is likely to oscillate between Rs 3,350-4,000 and it is coming down from the upper end of this range. There is a probable downside till around the Rs 3,400 mark and some support at Rs 3,550. Keep a stop at Rs 3,800 and go short. Partially cover at Rs 3,550 and clear the position at Rs 3,400.
JP Associates
Current Price: Rs 186.1
Target Price: Rs 170
The stock has developed a clearly bearish pattern with falling peaks and troughs. It broke a critical resistance when it closed below Rs 192. The next reliable support is at Rs 170. Keep a stop at Rs 192 and go short. Cover at Rs 170.
Yes Bank
Current Price: Rs 128.6
Target Price: Rs 145
The stock has landed on excellent support. As and when, selling pressure eases off banking stocks, it could bounce till Rs 145-150. Keep a stop at Rs 125 and accumulate with 10-session perspective. Start to book profits in the Rs 140-145 range. Clear the position above Rs 145.
Reliance Infra
Current Price: Rs 1,028
Target Price: Rs 1,150
The stock appears capable of staying above support at Rs 1,000. It has very strong resistance at Rs 1,150 but it could hit that. Keep a stop at Rs 1,005 and go long. Cover partially at Rs 1,100 and clear the position at Rs 1,150. If it breaks the R 1,000 support, the minimum downside is Rs 970 and potentially, it may drop till Rs 900.
Unitech
Current Price: Rs 67.5
Target Price: Rs 53
The stock has traded within Rs 60-75 on huge volumes. It has some support at the Rs 65-70 level but if it closes below Rs 65, it will probably slide till Rs 53. Keep a stop at Rs 72 and go short. Add to the position below Rs 61 and clear the position at Rs 53.
