Bulls to take a breather

TECHNICALS

The markets opened on a bullish note and proceeded to trade lower through the day. The benchmark indices lost almost a percent as the bulls preferred to book profits at higher levels.

Traded volumes were in line with the previous session and the market breadth signalled a complete reversal of the previous day's sentiments as the figures were highly negative.

The Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) combined figures were 1134 : 2197 and the capitalisation of the breadth was also negative as the figures on a BSE & NSE combined basis were Rs 3417 crore : Rs 5456 crore. The F&O data for the previous session suggests a building up of short positions and polarised trading around select index heavy-weights.

The indices have retraced almost a percent and ended the session at near intraday lows. That is a sign of short term weakness as the fall has seen bar reversals being made on the daily charts. The immediate hurdles will the intra-day highs of Tuesday at the 7308 and the 2238 on the Sensex and Nifty 50 respectively.

Unless the indices surpass these levels with convincingly higher volumes and stay above these levels for at least a session on a closing basis, short-term upsides are capped at these levels.

The support at lower levels for short-term traders will be at 2183 and the 7144 levels on the Nifty and Sensex respectively. Traded volumes must be watched very carefully for signs of possible distribution these levels in the near term.

The outlook for the markets on Wednesday is that of caution as the bulls are pausing for a breather and the put-call equations need to be watched in the near term. In case significant short covering is seen in the near term, downsides are likely to be capped in the short run.

Stock specific activity will be seen on ITC, Ashok Leyland and Glaxo SmithKline Pharma which are likely to see buying on declines due to the higher relative strength vis-a-vis the indices. Buying is recommended in small lots at lower levels in the cash and derivatives segment.

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.

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