Trading remained inside a narrow range as market operators recovered from the temporary euphoria of the buyback ordinance. Poor results, couple to a Credit Policy that caused little apparent change, left bulls with little reason to celebrate. On the other hand, there was little short-selling so prices moved very little in either direction.
The Sensex end at 2812.49 points which was a one percent gain on last week. The BSE-200 and Dollex ended up 1.11 per cent and 0.91 per cent respectively as the rupee weakened slightly. Forex experts however expect a further round of rupee weakening after the S&P downgrade. As a result, foreign institutional investors continued to sell albeit less enthusiastically. Their favourite segment, the top 100 Midcaps section showed losses - the BS-Midcaps 100 Index dropped 0.72 per cent. Most other sections showed small gains.
The BS-Midcaps-250 gained 0.35 per cent. The BS-Smallcaps gained 1.16 per cent. Trading volumes were low as previously mentioned. Breadth of participation was also missing although the advances to declines ratio was positive at 523 scrip's rising versus 312 scrip's falling while 51 actively traded stocks retained their earlier values. Less than 1000 stocks were actively traded which is far lower than normal. This masks bearishness given the lack of trading volumes as well.
More From This Section
Since October-December trading usually shows a large bearish bias, a further downtrend may be expected once the market breadth improves.
Especially since the long and intermediate trend time frames both appear negative. While by definition the short term trend seems to be up, it shows every sign of having weakened in Friday's session and next week could see further drift.
As previously mentioned, long term Sensex downside targets could be anywhere between 2485-2695 levels according to chart readings. There are a few hopeful signs of positive divergence on momentum indicators however. First, the Sensex has held above the downtrend line angled at minus 76 degrees which was formed by the lower tops since April 1998.
Second, indicators such as the RSI and ROC have both registered higher bottoms while the priceline has moved down. However, such positive divergence's can take a long time coming to fruition and on the last occasion they showed up the market had a weak uptrend after several weeks time lag.
Looking at time-cycles, the market could see a reversal around December 15 if you do a Fibonacci Analysis. That also fits with the fact the intermediate downtrend started in early October since it would mature around that time. Until then, by definition, further lower bottoms would be established.
The historic support for the Sensex would be at the December 1996 low of 2713 points. Last week, it established a bottom around 2740 points . If earlier target predictions are borne out the Sensex will break that 2713 support and head for a new five-year low anytime in the next 4-6 weeks. Based on this, my current advice would be to go bargain-hunting with a long-term perspective.