A Correction Is Overdue

 The bomb blast on Monday affected bullish sentiment only for a single session. After a sharp temporary correction, the market continued to advance with buyers returning on Tuesday.

 The Sensex ended on 4244.73 points for a gain of 2.9 per cent. The Nifty was up 3.46 per cent at 1356.55 while the Defty was ahead 3.44 per cent. The rupee lost a little ground.

 Breadth signals were marginal. Declines outnumbered advances, but the BSE 500 gained 4.04 per cent. The losers were mainly small caps; retail investors pulled out.

 The Nifty put-call ratio was down to 0.26, which is significantly overbought. Volumes remained good, rising through the last three sessions. Momentum oscillators showed negative divergences, not confirming successively higher price peaks.

 Outlook: There could be a short-term correction next week based on weakening breadth and momentum indicators. The market is way overdue for an intermediate correction but it shows no sign of one. The trend seems positive across all timeframes.

 But due to the sheer length of the rally, a short-term correction could trigger an intermediate downtrend. The primary support for the intermediate trend is Sensex 3950/Nifty 1260.

 Any reaction that ends above this level would not trigger an intermediate downtrend. So there