Bulls may get wary of highs

TECHNICALS

The markets opened on a positive note and proceeded to trade with choppiness through the day. The benchmark indices ended with minor gains as the bulls appeared fatigued at higher levels. Traded volumes were higher than the previous session but the price appreciation was not keeping in line with the turnover.

The market breadth was highly negative as the BSE and NSE combined figures were 1217 : 2240 and the capitalisation of the breadth was also negative as the figures on a BSE & NSE combined basis were Rs 5946 cr : Rs 6333 cr.

The F&O data for the previous session indicate a 1.25 per cent increase in net long positions on lower turnover and a rising PCR. The bears were seen getting more aggressive at higher levels.

The indices have closed at the median levels of the intraday range, which shows the bulls are appearing to turn cautious at higher levels. Higher turnover and the negative market breadth indicate paring of exposure at higher levels.

While this is in line with my expectations as specified yesterday, the immediate outlook is clearly defensive. The price extension studies indicate a possible overhead supply above the 3880 mark and unless this hurdle is overcome convincingly, the bulls may have to sweat it out in the short term.

The coming session is likely to witness support at the 3845 levels and resistance at the 3885 where selling may accelerate. Traders must continue to remain vigilant and monitor the market breadth very keenly in the coming few sessions.

The larger "shakeout pattern" is still underway. These type of market set ups are more favourable for the specialists and not the rank and file traders.

The outlook for the markets on Wednesday is that of abundant caution as the upsides may see limited head room and some more offloading may be seen before the uptrend resumes. All fresh trades (in either direction) must be on lower exposure due to higher volatility expected.

Vijay L. Bhambwani
(CEO- BSPLindia.com)

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com  or ( 022 ) 23438482 / 23400345.

Mandatory disclosure: the analyst has no exposure to the scrips mentioned above.