Next Reliable Support 4,800 For Market's Drop Target

Financials were also down with the Bank Nifty losing somewhat less than the market but most bank stocks closed bearish. The market crashed in the last two sessions with the Nifty bouncing from 4,955 level to close at 5,036 points for a week-on-week loss of 4.12 per cent. The Sensex was down 3.96 per cent, closing at 16,859 points. The Defty closed 4.93 per cent down as the rupee slid. Declines far outnumbered advances and volumes increased as prices fell. The broadbased BSE 500 dropped 4.3 per cent while the Midcap index dropped 5.4 per cent and the Junior was down 3.8 per cent. Domestic institutional investors were net buyers but FIIs sold heavily.

Outlook: The short term trend is bearish and the Nifty is likely to test 4,950 again at the very least. If it falls below 4,950, it could hit 4,800. Expect high daily volatility and high volumes as well since this is settlement week. The daily range could be 150 points.

Rationale: The market made a decisive downside breakout when it closed below 5,150 on Thursday – the breakout was confirmed by volume expansion. That drop set up a likely target of 4,950, which was fulfilled intra-day on Friday. If support at 4,950 is broken, the next reliable support is 4,800. If the market falls below 4800, an intermediate trend reversal would be confirmed.

Counter-view: In terms of time, an intermediate uptrend has been in force since end-November. A trend reversal would be quite likely and in that case, the market could dip till it hits support in the range of 4,750-4,700. The other possibility is that short-covering close to settlement could trigger a sharp recovery that pulls the market back above 5,180. That would be a positive signal but it would need to be backed by breadth (positive advance-decline lines) and strong volume action to make it valid.

Bulls & bears: This is results season so action will always be somewhat stock-specific. Reliance and Airtel did well on good results while L&T saw selling after it posted poor results. In fact, most major sectors saw heavy selling. The CNXIT lost a lot of ground despite the weaker rupee – Tech Mahindra was the only remotely bullish stock by Friday’s close. TCS, Wipro and Infosys were all looking weak.

Financials were also down with the Bank Nifty losing somewhat less than the market but most bank stocks closed bearish. Pressure on bank stocks could intensify next week. Metals, real estate and engineering-construction counters were sold heavily. If a quick recovery occurs in these sectors, it will be due to a combination of short covering and carryover buying. FMCG companies such as ITC and HUL saw some defensive buying. Some PSUs like REC and Concor could also see speculative buying in the hope of an IPO or FPO. A couple of auto and auto ancillary stocks could also move against the overall trend.