There could be a strong opening on Monday. The global cues have been strong, with the Dow Jones Industrial Average ending up 300 points and the August futures of CNX Nifty closing at 4,595 on the Singapore Stock Exchange (SGX). However, the short positions initiated by the foreign institutional investors (FIIs) in index and stock futures on Friday could affect the market sentiment and lead to profit-booking above the 4,600-levels.
The momentum indicators have also slowed down on the intra-day charts. The Nifty traded in a narrow range of 4500-4550 throughout last week. Technically, a rise in the price of a security leads to an increase in the price momentum. The faster the security rises, the larger the increase in momentum. Once this rise begins to slow, momentum also slows down.
Though not always a bearish signal, declining momentum can lead to a short-term intra-day correction. Technical analysts expect a brief correction to 4,200 (14,000) levels, followed by a rally with a medium-term target of 4850 (Sensex 16,300). In the last couple of days, the Nifty has witnessed a strong support around 4,500 and has managed to sustain this level.
Banking and financial stocks witnessed strong buying support last week. The Bank Nifty futures gained 500 points and the OI was up by 36 per cent. IDBI was up 17.73 per cent on short covering of 1.77 million shares. The stock was up by a per cent on Friday, with 11.5 million shares changing hands, largely on account of intra-day profit-booking.
HDFC Bank rose 15 per cent on short-covering and long build-up of 149,400 shares on the last trading day of the week.
Among other banking stocks, long build-up was seen in ICICI Bank, State Bank and several other mid-sized banks. Analysts expect further consolidation in banking stocks next week.
