Consolidation seen on Street

Technical analysts see declining market breadth and weak finishes amid rising volumes.

Domestic equities are heading for consolidation in the next two weeks as signs of exhaustion are evident with declining market breadth and weak finishes amid rising volumes, technical analysts said.

Although possibility of a major correction is low, portfolio realignment is likely after the 9 per cent rise in Sensex and Nifty in the last one month, they said.

On Wednesday, Sensex and Nifty closed 0.6 per cent down after witnessing around 1.5 per cent fall earlier in the session.

"It's (trend) not bearish as yet, only weakening," said Uday Joshi, technical analyst at SSKI Institutional Securities.

Led by two successive quarters of over 25 per cent growth in corporate earnings, the Sensex and Nifty have risen around 45 per cent since Jun 14, when they touched their 52-week lows. In 2005, the indices had logged a 40 per cent rise.

BSE-500 Index, accounting for 90 per cent of market capitalisation, also surged 50 per cent from June lows, without any negative weekly close for the last 15 weeks, driven by purchases by institutional investors.

"Indices are getting heavier and showing signs of exhaustion after rallying for four-five months without any significant pause," said Hitesh Sheth, head of technical research at Prabhudas Lilladher.

On Tuesday, the Sensex closed down 30 points at 13157 after witnessing successive highest-ever closes in the previous four sessions in a row.

Combined volumes on both exchanges rose 15 per cent from Monday to Rs 138 billion, indicating caution. Tuesday's market breadth also proved negative with 1,126 advances as against 1,394 declines.

The trend continued even on Wednesday with only 840 shares advancing as against 1,702 declining.

"Market breadth has been intermittently negative despite key indices making new highs nearly every session since last one week," Joshi said, while adding that broad-based participation is needed for the rally to continue.

"The consolidation is likely to take Nifty to 3650 level, if it can't hold 3725-3730 level, from where the intermediate current uptrend has resumed," a technical analyst with an institutional brokerage said.

Both Joshi and Sheth also expect Nifty to slide to 3650 in two-three weeks.

"Tuesday, Sensex touched low of 13135, after hitting new record high of 13300 that led to the formation of a "shooting star," which is a bearish reversal pattern with moderate reliability," said Kripal Singh Rathod of Brics Securities.

Sensex closing below 13108 on Wednesday has confirmed the pattern, he said, while adding that following this pattern, the market can go into sideways trend or decline.

Although he suggested unwinding of long positions around 13107 level, taking short position may prove to be risky until there is a decisive breakout below 12612 on Sensex and 3651 on Nifty.

"The current phase of "bull shakeout pattern" is likely to push traders to react out of frustration, as volatility and unreliability of trends will be high," Vijay Bhambwani, chief executive officer of BSPLIndia.com

He also sees Nifty around 3660, if it fails to hold 3720, the "retracement support."