Range trading likely

MACRO TECHNICALS

The markets endured a mid-week blood-bath after the US threatened to raise dollar interest rates.

By weekend, indices were down to mid-December levels - three weeks of gains had been wiped off in just three sessions. After hitting an all-time high of 2120 points, the Nifty reacted down to 2015.5 for a week-on-week loss of 2.15 per cent.

The Sensex hit an all-time high of 6696 before reacting down to 6420 for a week-on-week loss of 1.56 per cent.

Breadth signals saw a little recovery by weekend as advances outnumbered declines on Friday. Volumes were very high during the sell off but they remained respectable as the indices held their ground on Friday.

The Nifty put-call ratio was in neutral territory at around 0.38 by Friday - it had risen from the overbought level of around 0.3. Amazingly Nifty futures were still at a small premium to spot- price suggesting that the market retains long-term optimism.

Outlook: Next week will probably see range-trading between Sensex 6350-6650 (Nifty 1990-2100). There appears to be fairly solid support at the bottom end of this range, where the markets turned around on Friday.

There is strong resistance at the top end, just below the all-time highs. The intermediate trend looks weak due to the creation of lower bottoms last week.

Rationale: The market reacted sharply to the news about the dollar. It has found support along the 30 DMA (daily moving average) where momentum indicators such as 14-day RSI (relative strength index) and 10-day RoC (rate of change) have both hit oversold levels.

It has a very powerful resistance at Sensex 6650 (Nifty 2100). The intermediate trend has been up since late October and this is the first signal of major weakness.

Since intermediate trends rarely last more than 12 weeks, the correction is significant in its timing. We're in a long-term bull market hence the chances favour range-trading rather than a continuous slide.

Counterview: It is possible that the long-term bull market will terminate in March after range-trading until the Budget is announced. The post-Budget period normally features volatility and bearishness.

Bulls and bears: Mid-week, there were practically no bullish shares visible but Friday displayed more positive signals.

Cement stocks displayed strength throughout. ACC, GACL, Grasim and Indian Cements remain good defensive options that could beat the market.

Telecom stocks such as Tata Tele, HFCL, Shyam Tele and VSNL responded positively to the news about ADC (access deficit charge) cuts while MTNL slid sharply.

Tech stocks had a selective recovery - Trigyn, HFCL, Mastek and TCS all ended on a high note. Other scattered winners on Friday included Asian Paints, Colgate, Essel Packaging, Gujarat Gas, IDBI, Indian Hotels, L&T, Max India, Pfizer, RIL, Sesa Goa and Sterlite Opticals.

MICRO TECHNICALS

L&T
Current price: 972.45
Target price: 990, 1050

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The stock saw a sharp recovery on Friday and it's daily high-low range was greater than on Thursday when it had declined.

This sort of 'engulfing pattern' is supposed to be bullish according to candlestick theory. L&T could travel upto the 990 mark before it runs into some resistance. If it moves beyond 990, it would have a target of 1050.

ASIAN PAINTS
Current price: 320
Target price: NA

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The stock saw a strong recovery on Friday. It has defensive possibilities with strong support at 320 and a potential upside target of 350. Worth taking delivery with a stop at 300, where it has a secondary support.

INDIA CEMENTS
Current price: 63.15
Target price: 72

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The stock held firm through three sessions when the market was overcome by bearishness. A glance at weekly charts shows that its clearly bullish and it has a potential target in the 72-75 range. Go long and keep a stop at 60.

IPCL
Current price: 179.15
Target price: 185,190

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The impending resolution of the sibling rivalry has created a support at around 175. The stock will probably recover to around the 185 mark before running into serious resistance.

There is a chance that it could move back past 190. Maybe worth taking a long position with a stop at 175.

SHYAM TELECOM
Current price: 95
Target price: NA

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The stock has ascended vertically in the last couple of sessions and registered very high volumes through the week. When it crossed 75, it completed a very promising breakout with a target in the range of 105.

TCS
Current Price: 1339
Target Price: 1300

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The stock continues to rise with support along a roughly 55 degree trendline. It maintained this trend last week.

However, the weekly formation showed potential weakness and there could be a pullback till the 1300 level where there is good support. On the upside, there is resistance at 1350.

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