Conviction absent at high ranges

TECHNICALS

The bourses started trading on a steady wicket yesterday, and ended the day with approximately 0.5 per cent gains as bulls preferred to lighten their commitments at higher levels.

The traded volumes were thinner compared with Monday's session and the 10-day average.

The market breadth was marginally negative as the advances to declines numbers on the Bombay Stock Exchange and the National Stock Exchange combined stood at 1112 : 1580.

The capitalisation of the breadth was highly positive as the figures on the two bourses taken together were Rs 8,898 crore : Rs 2,610 crore.

The derivatives figures available for Monday's session show a marginal rise in outstanding long positions by about Rs 250 crore.

That is a sign of concern as there is a lack of conviction by the bulls at higher levels.

The indices have again encountered resistance below the resistance levels specified in this column yesterday at 1932 and 6065 levels on the Nifty and the Sensex, respectively.

As I had stated yesterday, poor traded volumes are signs of weakness on the part of the bulls.

The immediate support for the indices will come at the 1865 and 5985 on the Nifty and Sensex, respectively. The resistance levels remain constant at the 1932 and 6065 levels.

I continue to emphasise the importance of watching the price / volume / market breadth combination.

The outlook for the markets on Wednesday is of cautious optimism as the bulls are clearly on the defensive at higher levels.

Only if the bulls are willing to enhance their long positions and take them overnight, and only if the investors are willing to wait for higher gains will the outlook be sustainably positive.

Among stocks, Reliance has give a breakout above the Rs 600 mark and should it continue to trade above this psychological hurdle, the stock can rally 3 per cent in the near term.

Short-term traders can buy in a firm market in the cash and derivatives segment in small 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 author has no outstanding positions in any of the stocks mentioned above.