Market may get a boost

The support between Nifty 5675-5750 seems quite strong and there is further support at 5600.

Copy starts: Monday saw one of those meltdowns where sympathetic vibrations lead to collapses in every global market. The Nifty lost over 300 points intra-day before it turned from the depths of 5740. It dropped further on Wednesday when it hit 5676.

By the end of a truncated week, the Nifty closed at 5766.5 points for a loss of 4.65 per cent. The Defty was down 5 per cent as the rupee lost ground. The Sensex was off 4.34 per cent at 19162.57 points. The Nifty Junior was down 5.21 per cent.

Needless to say, the breadth wasn't good. Declines far outnumbered advances. Volumes were exceedingly high on Monday and Tuesday as there was panic selling. The BSE 500 was off 4.7 per cent while the CNX Midcap lost 4.86 per cent.

The CNX IT did however, gain marginally due to the rupee decline. In terms of institutional activity, FIIs were massive sellers while the mutual funds were marginally net buyers.

Outlook: The support between 5675-5750 seems to be quite strong and there is further support at the 5600 level. The market could easily bounce back to 5950. But it's likely to be stuck within the zone of 5650-5950 until the settlement at least. Volumes are likely to be lower than normal.

Rationale: Technical considerations of liquidity and outstanding futures and options positions will be top of the mind until Thursday. Short-covering may generate enough impetus to drive the market close to Nifty 6000 but there will be massive selling pressure above 5950.

On the downside, there seems to be genuine investment buying at below 5700. Any breakout beyond this range will be unexpected because that will require unusually high volumes and next week is likely to be light since FIIs will be closing their FY 2007.

Counter-view: It's been two swing weeks in succession and bears would have been trapped by the false rally above 6100 followed by bulls being trapped by the steep decline.

Settlement considerations could mean another big swing week. Up is more likely than down but a close below 5650 on Monday could herald another big fall. A change in government in Gujarat could be a potentially bearish trigger.

Bulls & Bears: There were practically no bullish performers last week except for IT stocks that held their own with large positive contributions from CMC and Satyam on Thursday. Sugar was the only other sector, which maintained a perky profile until massive profit-booking on Thursday.

Banks and financial stocks took a hammering but HDFC, ICICI and Yes Bank could make an early comeback. Quite a few other futures and options stocks could see a bounce on the basis of strong carryover and short-covering. Bharti Airtel, Cairn India, Century Textiles, Reliance Energy and Sun Pharma have promising profiles in this regard.

MICRO TECHNICALS

CMC Current price: Rs 1191 Target price: Rs 1250

The stock broke an important resistance at Rs 1165 on a large volume expansion. It has a potential upside till around the Rs 1250 mark. Keep a stop at Rs 1165 and go long. Start covering above the Rs 1240 mark.

DECCAN AVIATION Current price: Rs 277.9 Target price: Rs 250

The market's reaction to the merger with Kingfisher has been a decided thumbs-down. The stock has a possible downside till at least Rs 250 levels with some support at Rs 270. Keep a stop at Rs 280 and go short. Hold the short position till the Rs 250 level with perhaps a partial cover around Rs 265-270.

HDFC Current price: Rs 2722.95 Target price: Rs 2950

The stock has collapsed from the Rs 3200 level within the last five sessions. It looks as though it has reached reasonable support and is due to bottom out. The upside on a bounce could be as much as Rs 2950. Keep a stop at Rs 2710 and go long.

IFCI Current price: Rs 76.85 Target price: Rs 65

Massive selling has driven the stock down from Rs 120 to current levels within the past five sessions. There is a potential downside till about Rs 65. Keep a stop at Rs 82 and go short. Cover below Rs 67. The long-term trend of the scrip may have changed to negative – it is testing the 200 day moving average.

RELIANCE ENERGY Current price: Rs 1940.15 Target price: Rs 2250

The stock held its own last week and although it has seen volume reduction, it has made net gains. It is testing resistance between Rs 1920-1980. A close above Rs 1980 would set up a potential target of Rs 2250. Keep a stop at Rs 1910 and go long. Book partial profits at Rs 1975.