The market appears to have settled into a period of range trading with conflicting supply-demand situations. The institutional money is generally in exit mode but retail investors seem to have been lured back into the high-velocity ICE sector.
The week ended with the Sensex poised at 3287.56, which was up approximately 1 per cent from last week's end values of 3252.55. The breadth indicators were reasonable with advances balancing declines and the broad BSE-500 also rose by 1 per cent.
However, the Nifty showed less bullishness settling 0.77 percent higher while the rupee strengthened slightly with the Defty rising 0.87 per cent. Volumes were also reasonable. But institutions were net sellers and their profit-booking activities pulled the Sensex down from the intra-day high of 3377. The tech sector saw an end to the upsurge that has lured small investors back into the fray.
More From This Section
The market continued to register higher peaks and the retraction so far has not been severe. So this is still an intermediate uptrend and the time may be ripe for a switch in trend after 9 weeks of rising peaks and troughs. Perhaps the end-week profit-taking indicates a trend reversal.
In exceptionally rosy circumstances, intermediate trends have been known to continue for upto 12 weeks but this market is not oversold to that extent. Also FIIs are traditionally sellers in December when they balance their books. There is no reason to expect that pattern to change.
The market has covered the September gap and that area will now act as a downside support. So we shouldn't expect a reaction below 3150 in the immediate future. On the upside, a healthy signal for the continuation of the intermediate uptrend would be a break above 3377 intra-day and a close above 3350.
Expect the market to continue oscillating in a 200-point range for a while with volumes thining out while fence-sitters make a decision. Until it breaks either 3150 or 3350, there will be no clear direction although individual stocks and sectors could outperform.
Among specific sectors, cement seems poised to move up. Ice stocks have begun a reaction that could continue through next week. Ranbaxy and Thermax have been surging and could buck the market trend even if it turns negative.
Auto sector stocks look most interesting with a certain amount of profit-taking being balanced by buying. Here Telco maybe still worth a punt while Hero Honda and Bajaj Auto could see more reactions. We could also see defensive action with investors moving back into FMCG and pharma.
The Nifty Futures are ranged at 1068 (near month), 1059 (mid-month) and 1057 (far-month. Thus there is still a clear trend of backwardation. If you sell the near month and buy the mid-month and (in a separate trade) sell the mid-month and buy the far-month, there will be profits when and if, the backwardation corrects. In both cases, the trader is gambling that the spread when he reverses the above transactions will show less backwardation than in the current situation.