Weak outlook for Tata Steel

B.Krishnakumar

After a strong trend in the earlier week, the stock market sentiment turned distinctly weak in the previous settlement.

The bearish trend at the American bourses coupled with the terrorist attack on the Indian parliament imparted weakness in the domestic market.

Led by market heavy-weight Infosys Technologies, a host of technology stocks were pushed back to lower levels during the week. As a result the Sensex was confined to the negative territory. Technically, the recent weakness is still within the confines of a correction to the recent uptrend.

Despite the weak trend, it is positive to notice that the Sensex did not breach its 200 day moving average (DMA). It however remains to be seen whether it manages to stay above this crucial 200 DMA in the ensuing week.

As observed last week, the overall outlook for the market continues to remain positive. The earlier view that the Sensex would coast to its immediate target zone at the 3600-3700 range is still valid.

The immediate support for the Sensex is at the 3200-3250 zone. As of now, only a decline below 3050 would negate the possibility of a rise towards the 3600-3700 range.

This weeks focus is on Tata Steel and Gujarat Ambuja Cement. The outlook for both the stocks appear to be weak. The share of price of Tata Steel has ruled weak in the recent weeks. There is no evidence to indicate the completion of the recent downtrend in the Tata Steel stock.

Given the negative outlook, fresh buying in Tata Steel may be deferred for the time being. Very aggressive traders could use price upmoves to initiate short positions with a stop at Rs.99. A move past Rs.99 would warrant closure of existing short positions and also initiation of fresh long positions in Tata Steel.

The Gujarat Ambuja Cement scrip appears to have completed a major up move at Rs.220 on Tuesday. Given this assessment, the share price of the company may probably recede towards the Rs.140-150 range. As of now, only a move past Rs.232 would negate the weak outlook.

Taking into account the bearish outlook, fresh buying in Gujarat Ambuja Cement may be avoided for the time being. Existing holders could use short term price upswings to reduce exposures in the company. Aggressive traders could also contemplate short positions with a stop at Rs.214. Put options may also be purchased by traders on evidence of weakness at around the Rs.213 area.

Recommendation follow-up

The price action in Digital GlobalSoft (formerly known as Digital Equipment) was right in line with last week's recommendation. As expected, the scrip reversed direction right at the target price zone of Rs.485-495. After touching a high of Rs.492 on Tuesday, the scrip ruled weak during the remaining part of the week.

The near term outlook for the stock continues to remain weak. Fresh buying may therefore be deferred. Existing holders could use intermittent price up moves to reduce exposures in Digital GlobalSoft. Very aggressive traders could contemplate long positions if the scrip moves above Rs.492.

(Note: Recommendations in this column are based entirely on Technical Analysis using Elliott Wave and Point & Figure theory of the past price behaviour of the scrip concerned. There is a risk of loss in trading.)