Short on conviction at higher levels

TECHNICALS

The markets started trading on a shaky wicket and ended the day almost a percentage point higher as index heavyweights lent a boost to the markets.

The traded volumes were higher compared with the 10-day average and the market breadth was marginally positive as the advances to declines figures on the Bombay Stock Exchange and the National Stock Exchange combined stood at 1511 : 1315.

The capitalisation of the breadth was positive with the numbers being Rs 4,686 crore: Rs 3,243 crore on the two bourses combined.

The derivatives data available for Tuesday's session show a fall in outstanding long positions by about Rs 1,000 crore. That is a sign of concern as there is a lack of conviction by the bulls at higher levels.

The Indices have closed above their congestion levels that too with higher volumes which is a heartening sign for the bulls.

The next resistance points for the indices in the short term are the 1715 and 5325 levels on the Nifty and Sensex respectively.

The support on the downside will come at the 1666 and 5255 levels in the near term. It is likely that the markets consolidate the gains before making fresh upmoves, but the overall picture remains positive.

The boost is likely to come from the oil & gas, automobile and select cement stocks.

The outlook for the markets on Thursday is that of optimism as the buying support seen on Wednesdays session is likely to spillover to the session and initial trades are likely to be bullish.

Should the US markets also end up firmly, expect a bullish session ahead. Among stocks, Bajaj Auto is making new highs and has ended at an all time high - a sure sign of very high relative strength.

Investors with a medium term perspective can buy on all declines of up to 3 per cent and hold for a few weeks to avail superlative gains. Due to liquidity problems in options, buying is recommended in delivery and futures only.

Larsen & Toubro has confirmed a breakout as it has closed above the crucial Rs 434 levels. Any sustained closing above this level will see a continued bullishness on the counter. Buying is recommended in the cash and derivatives segment.

Traded volumes must be kept lower to protect your capital from the higher volatility.

Vijay 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.