Monday, 18 February, 2008

Week Ahead: Key resistance at 5483

Three successive winning sessions has put some heart back in the bulls. The Nifty closed on Friday at 5302.9 points for a week-on-week gain of 3.57 per cent. The Sensex gained somewhat more (+3.72 per cent) closing at 18,115.25 points. The Defty was up 3.58 per cent by the weekend.

Breadth was positive in terms of advances versus declines but volumes remained lacklustre on the recovery. Broader indices had smaller gains. The Midcaps was up merely 0.81 per cent, while the Junior was up 1.91 per cent. The BSE 500 gained 2.62 per cent however, suggesting that some retail investors were in action. Unusually for a week when the market recorded gains, FIIs (until Feb 14) and DIIs (till Feb 13) were net sellers. Anecdotal evidence suggests that both set of "IIs" bought on Friday.

Outlook: The recovery will run into resistance immediately above the current levels but it could climb till the 5400-5550 zone, where it will run into a key resistance. Whether it crosses that level or not will determine the intermediate trend.

Rationale: The intermediate trend has been down since January 9. The bottom on Monday at Nifty 4803 was higher than the panic bottom of 4448 on January 22. This suggests that the intermediate trend could be turning around. However we need a higher top as well to confirm an intermediate reversal and that means the Nifty will have to climb above resistance at 5483 (closing) and ideally, 5545 intra-day at the least.

Counter view: Lack of volume and lack of institutional faith are two factors that could impact the recovery pattern negatively. If the resistance at 5483 is not beaten, the market is likely to continue range-trading with support at 5100-5150 and lower, at 4800-4900.

Bulls & bears: The positive breadth is apparent across the F&O stocks at least. However, we can focus on the stocks where positive price action was accompanied by volume expansion. There were quite a few of these. Capital goods players like ABB and BHEL did well and so did PSU refiners and marketers such as IOC, BPCL and HPCL also received a big boost as did Essar Oil, RPL and RIL. There was a lot of buying in Unitech and DLF. Of the financial majors, ICICI and IDBI generated the most impressive comebacks though SBI and other banking stocks also rose. There was stock-specific investment coming into ACC Adlabs, Hindalco, HUL, Punj Lloyd, Nagarjuna Fertilisers and Tisco, where sectorial moves were less apparent.


Adlabs Films
Current Price: 925.4
Target Price: 1,000

Big volumes have backed a move from the 725 level. There's potential for a rise until 1000. There's also a big downside risk. Go long with a stop at 815 and if that is broken, go short with a stop at 880.

Current Price: 2,263
Target Price: 2,350

A sharp recovery from 1850 has come on higher volumes. If the stock fulfils its projections, it could run till the 2450 level but it's likely to hit severe resistance at 2350 and is unlikely to close above that level. Keep a stop at 2250 and go long.

Current Price: 120.8
Target Price: 130

Volumes spurted on Friday. The stock has a likely target of 130-135 where it will hit a huge resistance. Keep a stop at 115 and go long. Book some profits at above 125. If it does close above 135, it could have a run up till the 145 level before it hits the next serious resistance.

Punj Lloyd
Current Price: 378.5
Target Price: 400

The stock has the potential to climb to somewhere between 400-420. It's generated enough volume to hope for the higher target. In the timeframe of 6 weeks it has a target projection of 470. This will depend on two or three successive closes above the 400 level.

Current Price: 417.1
Target Price: 445

The stock has jumped from the 300 level with a big volume expansion. It has the potential to rise till 445 before hitting serious resistance and if the volume is maintained, it could go till 510. Keep a stop at 410 and go long.