Volatility with an upside

 

 

Strong support will help Nifty touch 4950.

 

A breakout to new highs was followed by further gains. The Sensex closed at 16564 for a week-on-week rise of 6.16 per cent with most of the gains coming in one massive session after the US Federal Reserve cut rates.

 

The Nifty closed at 4837.55 for a commensurate gain of 7.07 per cent. The Defty shot up a disproportionate 8.75 per cent driven by a rupee that strengthened to below 40 driven by enthusiastic FII buying and the change in rupee-USD interest differentials.

 

Domestic mutual funds were also positive and when both these institutional groups are in buy mode, we usually see high volumes and positive breadth. Last week was no exception.

 

The broad BSE 50 went up 6.14 per cent while the Junior rose 4.96 per cent. The only weak sector was export-driven stocks, fears of a strong rupee led to the CNXIT falling 0.8 per cent

 

Outlook: The market is likely to see at least one bout of profit-making in the coming week and volatility will be high. Nevertheless, the breakout has been classically bullish – resistances were smashed with coincident volume expansion. So the rise is likely to continue.

 

Rationale: A new all-time high always provokes some profit-booking and settlement week guarantees higher-than-normal volatility. But the old highs (Nifty 4647 and Sensex 15868) should act as a support on the downside. The chart pattern suggests that the Nifty has a target of a minimum 4950 before the impetus of this move starts to peter out.

 

Counter-view: The trigger for this move was the Fed's opening of the liquidity tap to tide over a potential crisis. If the crisis occurs nevertheless, sentiment could reverse sharply.

 

As mentioned above, profit-booking should find support between the Nifty 4600-4650 level. If the indices fall below this, it would be a signal that the trend is running out of fuel.

 

Bulls & bears: Apart from the IT sector, the sentiment was pretty much bullish across the board. Naturally bank and financial stocks were among the biggest gainers with the BankNifty up almost 8 per cent. In the financial sector, HDFC, HDFC Bank, SBI, Kotak, IDBI, IFCI and PFC all looked to be hot.

 

Another sector which seemed to be energised was autos – Hero Honda, M&M and Maruti were especially strong. Apart from this, the Reliance and ADAE group scrips continued to march on with RNRL, RIL, RComm and REL all swinging up.

 

There was also investment scattered across stocks such as Airtel, Gail, Grasim, L&T, Sail, Tata Power, Tata Tele and PTC all these are anticipated to log decent Q2 performances.

 

MICRO TECHNICALS

 

Hero Honda
Current price: 738
Target Price: 790

 

The stock has completed a bullish formation on decent volumes. A rise till the 790 level is possible on the basis of the chart pattern. Expect daily swings of 8-10 per cent because there will be a massive tussle between the bulls and bears. Keep a stop at 730 and go long.

 

RNRL
Current price: 76.85
Target Price: NA

 

The stock moved from 52 to 76-plus in just two sessions on massive volume expansion after news broke about its gas distribution plans. It's impossible to suggest a target on this pattern. Keep a sliding stop at 70 and go long. Move the stop up 5 units for every 5-rupee rise.

 

Sail
Current price: 192.95
Target Price: 205

 

The stock has jumped up from a trading range with a volume expansion. It looks set to hit the 205-210 level before the momentum eases. Keep a stop at 189 and go long. Book some profits above 200 because there will be intermittent selling. Consider taking a delivery position with a 6-week perspective since there is an intermediate target of 245.

 

SBI
Current price: 1807
Target Price: 1730, 1950

 

The stock jumped with a gap on Wednesday and it registered an engulfing pattern with Friday's high-low range being wider than previous sessions. Of course it ended up with a jump as well. The target on the basis of this formation should be around 1950 and it should be bullish on Monday. However volumes eased considerably in spot while OI shot up in the F&O segment. On the basis of all this, expect range-trading between the wide range of 1730-2000 during settlement week. Stay out of the stock if you have weak nerves or lack the nimbleness to switch trade direction quickly.

 

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