The market saw high-volume selloffs in the last two sessions as nervousness about US subprime mortgages caused bearishness across the world's bourses. The Sensex ended at 14868 points, down 1.78 per cent on the week. The Nifty was down 1.55 per cent, closing at 4333 points. The Defty lost even more ground as the rupee softened on account of the blocking of the ECB route and the Fed's decision on holding US rates.
At least that triggered some buying in IT shares – the CNXIT was up 1.84 per cent. IT apart, the breadth signals were quite negative with declines outnumbering advances by a distance. Volumes rose alarmingly on the sell–off. The BSE500 was down 1.7 per cent. The institutional attitude was interesting. The FIIs were massive sellers on several sessions. The domestic mutuals were net buyers in equity but showed a clear overall preference for debt instruments.
Outlook: The market is likely to test support in the 4250 region again. Expect a continuation of high volatility and wild intra-day swings and further net losses. On the upside, resistance is visible between 4400-4450 and that's likely to be the cap.
Rationale: The chart pattern confirmed an intermediate downtrend with lower highs and lower lows. This started on 25 July and it may take several more weeks to play out. Volatility always tends to be higher during a downtrend. During previous downtrends in the big bull market that started in May 2003, losses to the order of 25-30 per cent have been seen. There has already been a correction of about 10 per cent from the last historic peak of 4647 (24 July) to the 4239 bottom (10 August).
Counter-view: The market has also shown the resilience to come back strongly after each previous correction. On several occasions, intermediate downtrends have played out early. This could happen again – it depends entirely on sentiment. As of now, it doesn't seem likely.
Bulls & bears: The carnage was total in the banking sector with every stock in the BankNifty getting a hammering. In the next recovery, HDFC Bank is likely to outperform. Telecom also took a pounding but there was some buying at lower levels as indeed there was in auto stocks as well. Tata Motors would be the best bet on a recovery. The IT sector provided the only solace as the rupee softened. A further temporary rupee softening is likely; if that happens stocks like Satyam and Polaris will do somewhat better than Infosys, TCS and Wipro. Among other stocks, Asian Paints continued to defy the generally weak trend along with Apollo Tyres and IFCI while Hindalco and ONGC made clear downside breakouts.
Micro Technicals
Bharti Airtel
Current Price: 838.45
Target Price: 820
The stock broke a key support at 855 and saw volume expansion as it fell. The downside target is about 820. Keep a stop at 850 and go short. Start covering below 825. Be prepared for a sharp intra-day recovery after hitting 820 levels – this will pull the stock back about 835.
Hindalco
Current Price: 151.25
Target Price: 140
The stock broke a key support when it dropped below 155. There wasn't much volume on the breakout. The downside target would be about 140 but there is an interim support at 150. Keep a stop at 155 and go short. Increase the position if the stock drops below 150 and cover around 142.
ONGC
Current Price: 842.25
Target Price: 820
The stock dropped sharply on high volumes, completing a downside breakout. There is some support at 825-830 but that is likely to be busted if this level of selling continues. The chart pattern projects to a target of 820 and if that is breached, the downtrend could continue till the 750-level. Keep a stop at 850 and go short. Cover below 830.
Satyam
Current Price: 479.65
Target Price: 495
The stock saw steady buying from around the 455 level. It has a potential target of 495 with resistance starting above 490. Keep a stop at 475 and go long. Cover above 490. There is a chance that Satyam will settle into trading between an intra-day range of 465-495. If so, you may be able to trade both sides of the move.
Suzlon Energy
Current Price: 1296
Target Price: 1310, 1410
The stock is testing resistance between 1295-1310. If it closes above 1310, there will be a target of about 1400. Keep a stop at 1285 and accumulate with 10-session perspective. Increase the position as and when the stock rises above 1310. Book profits above 1370.
At least that triggered some buying in IT shares – the CNXIT was up 1.84 per cent. IT apart, the breadth signals were quite negative with declines outnumbering advances by a distance. Volumes rose alarmingly on the sell–off. The BSE500 was down 1.7 per cent. The institutional attitude was interesting. The FIIs were massive sellers on several sessions. The domestic mutuals were net buyers in equity but showed a clear overall preference for debt instruments.
Outlook: The market is likely to test support in the 4250 region again. Expect a continuation of high volatility and wild intra-day swings and further net losses. On the upside, resistance is visible between 4400-4450 and that's likely to be the cap.
Rationale: The chart pattern confirmed an intermediate downtrend with lower highs and lower lows. This started on 25 July and it may take several more weeks to play out. Volatility always tends to be higher during a downtrend. During previous downtrends in the big bull market that started in May 2003, losses to the order of 25-30 per cent have been seen. There has already been a correction of about 10 per cent from the last historic peak of 4647 (24 July) to the 4239 bottom (10 August).
Counter-view: The market has also shown the resilience to come back strongly after each previous correction. On several occasions, intermediate downtrends have played out early. This could happen again – it depends entirely on sentiment. As of now, it doesn't seem likely.
Bulls & bears: The carnage was total in the banking sector with every stock in the BankNifty getting a hammering. In the next recovery, HDFC Bank is likely to outperform. Telecom also took a pounding but there was some buying at lower levels as indeed there was in auto stocks as well. Tata Motors would be the best bet on a recovery. The IT sector provided the only solace as the rupee softened. A further temporary rupee softening is likely; if that happens stocks like Satyam and Polaris will do somewhat better than Infosys, TCS and Wipro. Among other stocks, Asian Paints continued to defy the generally weak trend along with Apollo Tyres and IFCI while Hindalco and ONGC made clear downside breakouts.
Micro Technicals
Bharti Airtel
Current Price: 838.45
Target Price: 820
The stock broke a key support at 855 and saw volume expansion as it fell. The downside target is about 820. Keep a stop at 850 and go short. Start covering below 825. Be prepared for a sharp intra-day recovery after hitting 820 levels – this will pull the stock back about 835.
Hindalco
Current Price: 151.25
Target Price: 140
The stock broke a key support when it dropped below 155. There wasn't much volume on the breakout. The downside target would be about 140 but there is an interim support at 150. Keep a stop at 155 and go short. Increase the position if the stock drops below 150 and cover around 142.
ONGC
Current Price: 842.25
Target Price: 820
The stock dropped sharply on high volumes, completing a downside breakout. There is some support at 825-830 but that is likely to be busted if this level of selling continues. The chart pattern projects to a target of 820 and if that is breached, the downtrend could continue till the 750-level. Keep a stop at 850 and go short. Cover below 830.
Satyam
Current Price: 479.65
Target Price: 495
The stock saw steady buying from around the 455 level. It has a potential target of 495 with resistance starting above 490. Keep a stop at 475 and go long. Cover above 490. There is a chance that Satyam will settle into trading between an intra-day range of 465-495. If so, you may be able to trade both sides of the move.
Suzlon Energy
Current Price: 1296
Target Price: 1310, 1410
The stock is testing resistance between 1295-1310. If it closes above 1310, there will be a target of about 1400. Keep a stop at 1285 and accumulate with 10-session perspective. Increase the position as and when the stock rises above 1310. Book profits above 1370.
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