There was little movement in the stock market with the rupee causing much of the hullabaloo after dropping sharply against the dollar. Equity prices stayed inside a very narrow range although the majority of stocks lost ground. The rupee was then talked up a little by the RBI. But another fall in the currency is likely to occur quite soon.
The BSE Sensex ended at 4084.71 points, which was a gain of 0.39 per cent. The Dollex dropped 2.33 per cent while the BSE200 lost 1.55 per cent. The broadest based BSE500 lost 1.79 per cent. The negative breadth signal was confirmed by a negative ratio of advances to declines. There were only 553 risers while 739 stocks lost ground. Trading volumes remained respectable without being very strong.
The Sensex appears to be forming a bottoming formation after testing 3831-3840 on successive days to create a slightly bullish double-bottom formation.
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The rise after the double-bottom was on the cards. However in more extended terms, we are still in a long-term bear market.
Apart from the negative breadth signals, the priceline is still trading well below a minus trendline at -56 degrees as well as below its own 8-day moving average. We have not yet had a clear rally since the Budget _ except for that three-session trading island in early April.
The bearishness has now persisted for three months. This is too long to fit an intermediate reaction within a bull market. On sheer duration alone, this has to be the first downtrend in a new bear market. It also fits on value erosion terms- 38 per cent off is plenty more than one would expect from a bull market intermediate reaction.
On time signals alone, the market must be set for a rebound. An intermediate trend ought to be mature after it has been in force for as many as 12 weeks. Since there is a Fibonacci Timezone signal that suggest a reversal in early June, we may have some relief available fairly soon. But it must be noted that any intermediate uptrend is likely to be the reaction against a major bear market rather than the beginning of a new bull market. So it ought to be used to sell off and book profits, rather than as an investment opportunity.
The lack of a rebound so far, has forced recalculation of the time and retracement levels on several occasions. The current 3831 support may not hold since the background signals were negative at that point. In which case, expect the market to slide to around the 3595 level. It would be best if the market doesn't spend too much time drifting - a sharp drop to an ultimate bottom would be preferable to slow erosion.
But next week could actually start with a small rise that peters out around the 4154 mark or possibly after testing 4210. Don't expect any easing of the bear hug to last. Utilise any rallies above 4200 to sell off and book profits. A big bear market can last a very long time. It is better to sit through a bear market cash-rich and earning interest than to indiscriminately buy everything that is going cheap.