Caution as bulls go on defensive

TECHNICALS

Japanese traders have an interesting theory about short-term market momentum. It is called the morning attack theory. It observes that the mood of the market at open (if very strongly prevalent ) will persist till the closing of the session.

That theory was in evidence on Monday as bears moved in for a morning attack on the bulls. The indices never really recovered from this early selloff, shedding almost 0.75 per cent in value at closing time.

Traded volumes were subdued and that shows an absence of panic selling at the current levels. The market breadth remained negative as the BSE & NSE combined figures were 2088 : 1362 and the capitalisation of the breadth was positive as the combined exchange figures were Rs 4784 crore: Rs 3185 crore. That shows a buying bias on select index heavy-weights.

The indices have closed below their short term inflection points as the previous week's meltdown levels on Wednesday proved to be the immediate hurdles on the upsides.

The Nifty will continue to encounter resistance at the 2355 mark and the downsides will see support at the 2290 in the absolute short term.

The trend determination process will be clear from traded volumes in conjunction with the price, open interest and market breadth. Traders must keep their ears to the ground and watch out for these signals in this entire week.

The outlook on Tuesday is that of caution as the bulls are clearly on the defensive and bears are pressing aggressive sales at higher levels. As long as this overhead resistance persists, the upsides are likely to be capped for now.

Traders may start to press short sales at near the 2355 levels and continue a bearish bias till such time as the 2380 are not surpassed.

On the downside, all shorts maybe covered temporarily at the 2290 levels. Income-conscious players may sell the near month Nifty calls at the 2240 levels and Nifty puts at the 2150 levels in minimal lots.

Vijay L. Bhambwani
(CEO- BSPLindia.com)

The author is a Mumbai based investment consultant and invites feedback at vijay@BSPLindia.com  or ( 022 ) 23438482 / 23400345.

SEBI disclosure: the analyst has no exposure to the scrips mentioned above.