Public CompanyShort-term downtrend in force
Crucial Support at 4,800
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The stock market closed with net losses after a quiet week when trading volumes and volatility was low. The Nifty was down 2.53 per cent, closing at 4,987.7 points while the Sensex lost 2.33 per cent closing at 16,719 points. The Defty was down 3.2 per cent with the rupee under pressure.
There was steady though moderate FII selling and some buying from domestic institutions. Volumes were low, breadth was down with more stocks registering declines versus advances. The BSE 500 and Midcaps lost less ground than the Sensex/Nifty, dropping by 2.05 per cent and 1.6 per cent, respectively.
Outlook: The Nifty has broken a key support and dropped into a lower zone. It is in a short-term downtrend and likely to trade down till support at the 4,850 levels before consolidation between 4,850 and 5,000. Volatility may increase. The next key support to watch is 4,806 – if that is broken, a bearish intermediate sequence of lower lows will be established.
Rationale: This looks like a short-term mini-breakout. There was a lack of volume expansion and of volatility even after 5,000 was breached. There is a lot of support in the trading range of 4,800-5,000. However, the poor breadth and low volumes could last till the end of the year (Settlement is December 31) and that increases the chance of an intermediate downtrend.
Counter-view: The very powerful resistance at 5,180 (it"s been tested unsuccessfully thrice) and the persistent reaction from that level could mean a long-term trend reversal. This seems unlikely given that the 200 moving average is still rising. But it is possible. Until and unless that resistance at 5,180 is broken, it is difficult to be absolutely confident about the long-term health of the market.
Bulls & Bears: By and large, larger stocks saw larger losses last week– the Junior did better than the Nifty for instance. The CNXIT was the most positive sector performer gaining over 2.9 per cent. Most of the IT majors registered some gains and HCL Infosystems was particularly strong.
There were also signs that the wind energy sector (Suzlon, Indowind, NEPC Micon) was seeing investment. In contrast to the CNXIT, the Bank Nifty saw disproportionate losses of over 5 per cent. Both PSU banks and private banks suffered. The trend also affected other financials like IFCI, IDFC and HDFC. Other rate-sensitive stocks like realty also saw large net losses.
The pharma sector continued to show defensive strength with Cipla, Aurobindo, Ranbaxy and Dr Reddy’s all doing well. Sugar continued to do well. Trends were mixed in other sectors with some winners and many losers scattered across the stock universe. Tata Motors, Essar Oil, Havells, Greenply, Jyoti Structures and Power Trading were among the set that looked bullish.
MICRO TECHNICALS
AXIS BANK
Current Price: Rs 934.30
Target Price: Rs 1,000
The stock has slid until its hit a good support. It may be due for a reversal. On the bounce, we could see an upwards technical correction till around Rs 1,000 level. Keep a stop at Rs 925 and go long. Book partial profits at Rs 975. [----------]
DR REDDY’S
Current Price: Rs 1,207
Target Price: Rs NA
The stock has made a bullish breakout on a volume expansion. It is already at a 52-week high and target projections are difficult. Keep a trailing stop-loss at Rs 1,085 and go long. Move the stop up by 20 points for every 20 point move. [----------]
TATA MOTORS
Current Price: Rs 733.95
Target Price: Rs 770
The stock has hit a series of recent 52-week highs on excellent volumes. It is possible to project a target of Rs 775, but there will be a large error margin. Keep a trailing stop at Rs 720 and go long. Increase the position above Rs 740 and move the stop up by 10 points for every 10 point move. [----------]
INDOWIND
Current Price: Rs 56.35
Target Price: Rs 60
The stock has achieved a bullish trading pattern on the basis of strong volume action. It has the potential to hit Rs 60 on intra-day moves at the least. If it closes above Rs 60, it could have a target of about Rs 65. Keep a stop at Rs 54 and go long. Book profits at Rs 60. [----------]
RELIANCE INDUSTRIES
Current Price: Rs 1,007.65
Target Price: Rs 950
RIL split fairly recently so, projections will have a high error margin. The stock is testing a key support at current levels. If it closes below Rs 1,000, it could fall till around the Rs 950-960 zone. Keep a stop at Rs 1,025 and go short. Increase the position below Rs 1,000. Start booking profits below Rs 965.