Support at 5,150, resistance at 5,300.

The market hit a new 52-week high in the first full week of trading. But volumes tapered off and prices dropped towards the weekend. The Nifty closed at 5,244.75 points with a gain of 0.8 per cent after climbing to 5,310. The Sensex was up 0.4 per cent, closing at 17,540. The Defty gained 2.75 per cent as the rupee strengthened sharply.

Breadth indicators were good with advances comfortably outnumbering declines despite Friday’s sell off. The rupee’s strength was partly due to committed buying from FIIs and domestic institutions were also net buyers. The Nifty Junior was up 2.7 per cent while the BSE 500 rose 1.7 per cent. The Midcaps also outperformed the Nifty, rising 3.8 per cent. Volumes were on the low side.

Outlook: The market is liable to range between 5,150 and 5,300 next week and the initial bias could be negative. Any breakouts could lead to a 150-200 point swing if there’s a volume expansion with the breakout. That is, if the market drops to a close below 5,150, it could drop till around 4,950 and if it rises to close beyond 5,300, it could test 5,400-5,450.

Rationale: The poor advance-decline situation on Friday (when most stocks closed lower than Thursday) suggests a short-term decline. However, there is very strong support in the erstwhile zone of resistance between 5,150 and 5,180. On the upside, there is a lot of resistance between 5,275 and 5,300. To clear that resistance, it will require serious volume expansion. Even the 5,400-5,450 zone has massive trading history, so the Northwards journey will need lots of fuel.

Counter-view: The long-term trend is firmly up. The absence of volatility in the past two-three weeks can be explained to some extent by the lack of volume, which in turn is partly due to the holiday season. If volumes improve, as they should, over the next 5-10 sessions, prices are likely to show an upward trend. The one serious danger would be a pullout by FIIs.

Bulls & bears: The IT sector was hit hard by the rupee rise – most of the majors have seen selloffs and the CNXIT dropped 3.7 per cent this week. Results are soon due for Infosys and TCS, and the market sentiment seems bearish. One exception is Mahindra Satyam, which climbed last week. Banking appears to be past a recent bearish phase and it will probably outperform the market. IDFC and Axis Bank may beat the overall financial sector.

Realty made a strong comeback on Friday with most of the big guns rising, but part of this may have been short-covering ahead of the weekend. Engineering and construction stocks like HCC, GMR Infra, Nagarjuna Construction, Maytas and Jyoti Structures also did well. Automobile shares saw profit-booking. But, auto ancillaries such as Bharat Forge, Bosch India and Sona Steering saw bullish backing. Non-ferrous metal stocks also saw buying and Sterlite and Hindalco continue to look interesting. There was scattered stock-specific interest in counters like Suzlon, GE Shipping, JP Associates and NTPC.

source: Business Standard

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