There was panic selling on two successive sessions. The Nifty closed out on 4108.35 points for a week-on-week loss of 5.19 per cent. The Sensex was down to 14141, dipping briefly below the 14000-mark to lose 4.89 per cent. The Defty lost 6.8 per cent as the rupee plunged as a direct result of FII redemptions.
The Nifty Junior was down 5.94 per cent. Volume was extremely heavy on the sell-offs and breadth was almost totally negative. The BSE 500 was down 4.89 per cent. Domestic mutual funds were net buyers to a small extent but not enough to mop up anything close to the amount FIIs put under the hammer.
Outlook: Clearly the trend has become more bearish. There may be a sharp but temporary, recovery next week. The Nifty is unlikely to cross resistance at 4200-4250. On the downside, support levels around 4000 will probably be tested again. Expect net losses through this settlement at the least.
Rationale: Clearly the intermediate downtrend has gained momentum and completed its fourth week. At the daily level, indicators are oversold and the 200-DMA is around 4000 where the market found support on Friday. The intermediate trend is likely to stay down but there will be single-session recoveries as profits are booked in short positions.
Counter-view: This has all the early warning signals of a new bear market. It could be a short, sharp correction as in mid-2006 when the market fell 30 per cent inside one quarter and recovered equally rapidly. If it is indeed the first wave in a big bear market, the trend could stay down for two months.
Bulls & bears: Very few stocks can move in the opposite direction to a powerful market-wide move of this nature. However, stocks where FIIs and especially hedge funds are over-exposed will be hit the hardest.
This is the reason why the CNX IT dropped 5.47 per cent despite the rupee softening. Telecom stocks have suffered for similar reasons. However, once the hot money has fled, these stocks will also see the quickest recoveries.
Most stocks have broken key supports in the past week and could fall further. However, a small, select list seems to have "flushed" out the hot money and may be capable of quick bounces. This list of potential comebacks includes Bharti Airtel, Dr Reddy's, Hindustan Unilever, ICICI Bank, LIC Housing, M&M, Reliance Industries, Reliance Energy, Sun Pharma and Tata Power.
Liquidity is likely to disappear in small caps and mid-caps during the next week so avoid trading anything outside the F&O list. Expect the high volatility to continue till the end of the settlement at least.
Bharti Airtel
Current Price: 796.95
Target Price: 830
The stock has recovered to a key support level after hitting lows of 750 in intra-day trades. There is a reasonable chance of a pullback till the 830 level in the next two sessions. Keep a stop at 790 and go long. If 790 is breached, switch to a short position because there will be an intra-day downside till 760 levels.
ONGC
Current Price: 783.95
Target Price: 755
The sell-off broke a key support when the stock closed below 825 on Thursday. There is a likely downside till the 755 level. Keep a stop at 790 and go short. Cover below 760. Expect a high-low range of 745-815 during next week's sessions.
Sun Pharma
Current Price: 935
Target Price: 975
One of the few stocks that retained value during the downtrend of last week. It has the potential to rise till the 980 level. Keep a stop at 900 and take delivery with the perspective of three weeks. Book profits above 975.
Tata Power
Current Price: 701
Target Price: 665-765 (Range trade)
The stock has developed a massive range and it could trade anywhere between 665 and 775 next week but there is a mildly bullish bias. Use the 685 level as a pivot. At current price, go long with a stop at 685 and cover above 750. If the stop is broken, go short and cover below 665. If it moves below 665, increase the short position.
Tata Steel
Current Price: 544
Target Price: 510
The stock has made a downside breakout on expanding volumes. It has a projected downside till the 510 level. Keep a stop at 550 and go short. Cover around 515. If the stock closes 550, go long and expect a recovery till the 575 level.
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