Short covering to drive buys

TECHNICALS

The markets opened on a positive note and proceeded to trade lower through the day. The benchmark indices shed under 0.5 per cent, as the bulls continued to display a lack of buying conviction at higher levels.

The traded volumes were higher than those of the previous session, as intraday traders participated in the day's activity.

The market breadth was highly negative as the BSE and the NSE combined figures were 1503 : 2102 and the capitalisation of the breadth was positive as the figures on the BSE and the NSE combined basis were Rs 8619 crs : Rs 3807 crs.

The F&O data for the previous session indicated a build-up of fresh shorts on advances, which prompted us to advocate caution at higher levels.

The indices have closed at the lower end of the intraday spectrum and that too on higher volumes. The negative market breadth adds to the concern as does the lower tops and bottoms formation on the short-term charts.

The outlook for the short-term traders is amply simplified by compressing the indices under 60 minutes, which shows an open gap which needs to be filled.

The 4060 support advocated yesterday was not tested and so was the case with the resistance specified at 4154. That indicates the market is gearing up for bigger decisive moves.

The coming session is likely to witness intraday levels of 4128 on advances and 4064 on declines. The 4060-4065 band is fast emerging as a short-term trend determination level for short-term players.

The outlook for the markets on Thursday is that of caution, though not much of rollover/short covering is likely to remain ahead of the derivatives expiry. As I had advocated yesterday, the only organised buying is likely to come from short covering in the absolute short 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.