Groping for direction

TECHNICALS

The markets started Thursday on a strong note but wound up lower. Traded volumes were steady compared with the previous session and in line with 10-day average.

The breadth was marginally negative as the advances to declines ratio on the Bombay Stock Exchange and the National Stock Exchange combined were 1250 : 1414.

The capitalisation of the breadth was marginally negative as figures from the two bourses combined stood at Rs 4,235 crore : Rs 4,588 crore.

Derivatives data available for Wednesday's session show a marginal rise in outstanding long positions by about Rs 350 crore.

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

The indices have encountered resistance below the resistance levels at the 1915 & 5990 levels on the Nifty and the Sensex, respectively.

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

The immediate support for the indices will come at the 1855 & 5855 on the Nifty and Sensex, respectively. The resistance levels remain constant at the 1920 & 6015 levels.

I continue to emphasise the importance of watching the price / volume / market breadth combination. This rangebound trading pattern raises the probability of a breakout / breakdown in either direction as the markets are seeking a clear sense of direction.

The outlook for the markets on Friday is that of caution as the bulls are clearly on the defensive and the technology sector is likely to be a drag on the benchmark indices.

Being heavily weighted in the indices, this sector will hold the key to the near term outlook for the markets.

I continue to advocate selling Nifty straddles at conservative strike prices and in minimal lots only.

Bhel recommended yesterday has performed above expectations and re-entry at lower levels maybe attempted. All trades should be executed in small lots only.

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.