Sunday, October 19, 2008

WEEKLY OUTLOOK 20TH - 24TH OCT



Strong & Weak futures
This is list of 10 Strong Futures:
Boi, Hind petro, Ioc, Gtl, Bahrat petro, Ubi, Obc, Pnb, Bob & Allahabad bk.
And this is the list of 10 Weak Futures:
Suzlon energy, Rel. capital, Essar Oil, IVR Prime Urban, Bajaj Hind, JSW Steel limit, Educomp solution, Ivrcl infrrast, z Nagarjuna constr & Ndtv Ltd.

Nifty is in Down Trend.
FII Data
FII
17/10: -915.54 Cr. (Prov)
DII
17/10: 712.77 Cr. (Prov)



Index Outlook


Sensex (9975.3)

Despite the brouhaha over the Sensex closing below 10000, there are a number of positive takeaways from last week's proceedings. The regulators appear to have finally identified the cause for the present turmoil and seem to be taking steps in the right direction, credit markets eased and more importantly, no financial institution lined up for emergency resuscitation last week. Stock prices did gyrate tirelessly, keeping everyone on the edge of the seat, but the troughs formed in the previous week were not breached significantly by any of the major global indices.

Though the weekly close below 10000 has rattled everyone, it needs to be borne in mind that the Sensex too is just 200 points below previous week's trough. Last week's movement of the Sensex is in fact comforting as the index appears to be attempting to stabilise itself at lower levels. Volumes were low reflecting the extremely bearish sentiment. Activity was subdued in the derivatives segment as well.

The steep decline witnessed over the last month has taken the daily, weekly as well as monthly oscillators into oversold territory. Monthly and weekly relative strength index is currently at a level last recorded in September 2001, following the World Trade Centre bombing. But these indicators have not yet reversed higher or signalled a buy.

It is apparent that the third leg of the downtrend from January peak in Sensex is unfolding since the 15580 peak. If we consider the minor counts of this leg of the down move from 15579, the much-feared third of third (third minor of the third wave) seems to have been in motion since the September 22 peak at 14221. This part of a down-move wreaks extensive damage and is extremely ferocious. But it is also very swift and ends quickly.

In other words, the index could be close to a medium-term trough that can be formed at 9700 or just below, in the band between 9300 and 9400. A period of sideways movement between 9500 and 12000 can then follow as the move from 15580 completes itself before starting a sustained medium-term up-move. Investors need to worry only if the index declines below 9300 over the next two weeks as that would suggest that the third wave is extending.

Volatility can persist in the week ahead. A strong opening on Monday would take the index higher to 11204 or 11557. Close above 11557 will make the short-term outlook positive paving the way for a rally to 12066. Conversely, a weak start will drag the Sensex to 9679 or 9409. A sustainable medium-term trough is possible at either of these levels.

Nifty (3074.3)


Nifty rose to an intra-week peak at 3648 before declining below the psychological 3200-mark. The index is close to the long-term support at 2940 indicated last week. If we consider the targets of the third leg down from the 6357 peak, the first target is 3070. In other words, a medium-term trough is possible in the band between 2950 and 3000 following which the index can move sideways between 2950 and 3500 for a few weeks before launching a medium-term up-move. A decline below 2950 would, however, mean that the third leg is extending. The June 2006 trough at 2595 would then be in reckoning.

For the short-term, an up-move on Monday can take the index higher to 3419 or 3522. Reversal from either of these levels would result in a sideways move between 3000 and 3500 for a few weeks. Target above 3522 is at 3735. Supports for the week would be at 2965 and then 2543.

Global Cues

It was a very volatile week for most global indices as they moved higher in the first half of the week only to reverse in the second half to end on a rather shaky note. Meanwhile, the CBOE volatility index recorded a new high on Thursday and recorded its strongest weekly close ever at 70.3 implying that investors continue to be extremely nervous. The Dow Jones was volatile in a 1000-point band. A close above 9400 will mitigate the negative near-term outlook in this index. Else a decline to 7400 or 7200 is possible before an intermediate term trough is formed.

Commodities extended their decline; the CRB index fell 3.5 per cent for the week. Crude traded on Nymex declined to $68.6 per 1000 barrels last week before recovering to close above $70. The supports on the long-term charts are at $66 and then $62. Decline below these levels will imply the end of the bull market that is in sway since 1998 in this commodity.

Infosys


It was an intensely volatile week for Infosys as the stock first rallied to Rs 1,411 and then declined to Rs 1,100 again.

As explained last week, the stock has key long-term support at Rs 1,110.

A sustainable trough is possible at this level. However a close below this level will drag the stock to the next support band between Rs 920 and Rs 940.

The stock faces immediate resistance at Rs 1,418. A sideways movement between Rs 1,100 and Rs 1,400 is possible in the short-term as the stock builds a base from which to launch the next up-move. Resistance beyond Rs 1,400 would be at Rs 1,530 and then Rs 1,650.

Reliance Infra


There was some stability in the stock last week as it moved sideways between Rs 480 and Rs 660.

The weekly loss of Rs 24 appears miniscule when compared with the previous week when the stock lost more than Rs 200. Immediate support on the chart is at Rs 450.

The band between Rs 400 and Rs 450 is a potential base for this leg of the down-move. However, the medium-term view will turn positive only on a close above Rs 660.

Short-term resistance will be at Rs 658 and Rs 724. Downward reversal from the first resistance will make the stock move in a sideways range between Rs 500 and Rs 650 for a few sessions.

Maruti Suzuki


Maruti Suzuki has been under severe selling pressure from last November. This long-term down-trend halted in the first week of July and a steady medium-term up-trend is in progress since then. This move can be enclosed within an upward moving trend channel. The key long-term support for this stock is at Rs 572 and two weekly closes below this level need to be recorded for the long-term view to turn negative.

The stock will face strong resistances at Rs 750 and then at Rs 800 in the near-term. A sideways move between Rs 600 and Rs 800 is possible over the next couple of months. Short-term supports are at Rs 610 and Rs 600.

SBI


State Bank of India moved higher in line with our expectation and achieved the first short-term target at Rs 1,570. Though the bearish engulfing candle recorded on Friday has marred the short-term picture, traders can hold their long positions as long as the stock trades above Rs 1,330. An upward reversal from these levels can take the stock higher to Rs 1,640 or Rs 1,750 in the near-term.

SBI is holding very steady amidst all the turmoil and the medium-term outlook for the stock remains positive.

The stock has the potential to rally to Rs 1,813, once it gets past Rs 1,570. Close below Rs 1,250 is required to negate the positive medium-term outlook.

Tata Steel


Tata Steel continued plunging into an abyss recording yet another 14 per cent weekly decline. The stock has also sliced through the support at Rs 275. It needs to recover next week and record a weekly close above Rs 295 to salvage the situation. Else, it can head towards the next long-term support at Rs 156.

Though daily and weekly momentum indicators are deeply over sold, the near-term trend in the stock remains negative. The stock can decline to Rs 214 or Rs 193 in the short-term. A trough is likely to formed soon, which can be followed by some sideways movement at lower levels. Resistance levels for the week ahead would be at Rs 328 and then Rs 350.

Reliance Ind


RIL recorded an intra-week peak at Rs 1,668 and closed 22 per cent lower from that level on Friday.

The stock has moved to the long-term support at Rs 1,290, which is at the 61.8 per cent retracement of the entire up-move from the 2002 trough. But the weekly close at the lowest point is a negative and denotes there can be further price erosion next week. Immediate support on the chart is at Rs 1,200 and Rs 1,140.

A close below Rs 1,250 can usher in a decline to the August 2006 trough at Rs 960 or further to Rs 810.

Fresh short positions are, however, recommended only on a move below Rs 1,250. Resistances for the week are at Rs 1,668 and Rs 1,704.

The way the FII action unfolded this year



FII selling in Sensex stocks has not been significant, changes in shareholding patterns between June and September 2008 show. FIIs have also marginally increased stakes in 8 out of 25 companies for which data is out.




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Arvind Parekh
+ 91 98432 32381