Bulls to be on the defensive

TECHNICALS

The markets started trading on a steady wicket and ended the day with minor gains after a rangebound session. Traded volumes were sharply lower compared with the previous session and the 10-day average. That makes the upmove questionable as the rally lacks strength.

The market breadth was marginally negative as the Bombay Stock Exchange and National Stock Exchange combined figures were 1285 : 1314. The capitalisation of the breadth was positive as the combined exchange figures were Rs 5016 crore : Rs 1840 crore. That shows a buying focus on select index heavyweights.

The derivatives figures available for Tuesday's session show a 5 per cent rise in outstanding long positions by about Rs 400 crore. That is a sign of minor comfort as bears are seen covering short positions at lower levels.

The Indices have closed below their psychological support at 5550 and the 1750 levels for the Sensex and Nifty, respectively, for the second day in a row.

Though the intra-day lows are higher than the previous session, the weakness is by no means exhausted. The intra-day supports for the indices are likely to be at the 1726 and 5480 levels, below which the markets are likely to see even lower levels.

The upsides are likely to see resistance at the 5580 and the 1778 levels on the Sensex and Nifty, respectively. The markets may see a minor pullback in the upward direction as short sellers cut positions. The outlook still remains cautious.

The outlook for the markets on Thursday is that of cautious optimism as bulls are clearly on the defensive and the technology sector is showing signs of temporary strength. Being heavily weighted in the indices, this sector will hold the key to the near term outlook for the markets. Should the US markets be firm, the upmove may see some more strength.

Satyam Computers - This counter is likely to see some upsides where the counter witnesses selling pressure at 308. The scrip is moving downward and the 308 - 310 levels are a strong selling point. Selling short in small lots is advocated on advances with Rs 5 stop loss.

Vijay L Bhambwani is CEO, BSPLindia.com

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

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