New corrective phase deemed in evidence

TECHNICALS

The markets opened on a bearish note and proceeded to trade lower through the day. The benchmark indices shed over 3.5 per cent over the previous close. Traded volumes were lower compared with the previous session, which is unlikely to provide comfort to the players as falls can occur on poor volumes, aided by gravity alone.

The market breadth was highly negative as the BSE and NSE combined figures were 1 : 10 and the capitalisation of the breadth was also negative.

The indices have closed at the lower end of the intraday range and as I have been advocating, the initiative has completely disappeared from the bullish hands into the bear camp.

That the indices have made a "long tail" formation on the point and figure charts and the elliot studies indicate a termination of a crucial phase in the upmove of the markets, a new corrective phase can now be deemed to have commenced.

While this phase in no way indicates the end of the long term bull market, can test the patience of the players, more than the May 2006 fall.

Elliot charts are indicating a future 5 wave impulse that will be bigger and more powerful than the May 2003 - February 2007 period. Patience and free cash will ensure that savvy traders are able to participate in that new bull market of the future.

The outlook for the markets on Tuesday is that of absolute caution as bottom fishing in a market like the current one is akin to catching a falling knife.

The intraday range is likely to be restricted to the 3470 on declines and 3682 on advances. The markets are likely to exhibit very large swings in the coming sessions and traders should try and wait it out in the absolute near term.

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.

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