Major trend reversal ruled out for now

TECHNICALS

The markets opened on a cautious note but proceeded to trade higher through the day. The benchmark indices gained for the second day in a row to breach a new high on the Sensex.

The market breadth was marginally positive as the BSE and NSE combined figures were 1,754 : 1,586 and the capitalisation of the breadth was also positive as the figures on a BSE and NSE combined basis were Rs 6,842 crore : Rs 2,713 crore.

The F&O data for the previous session indicates a short covering bias at lower levels as the bears are unwilling to carry-over their short sales to the next settlement.

The indices have managed to close near their intra-day highs as the short covering kept the values higher. Intra-day support and resistance levels on the Nifty for Wednesday are at the 2,988 and the 3,057-levels respectively.

The traded volumes need to perk up if the uptrend is to prove sustainable in the coming days. Unless retail buying emerges at higher levels, the uptrend will stand a fair chance of petering out after the February derivatives series expires.

The open interest and market breadth also need to be kept under constant surveillance by traders to arrive at a trend determining conclusion in the coming 2-3 sessions.

The outlook for the markets on Wednesday is that of continued short covering and rollover related activity and a major trend reversal is ruled out for now. A routine profit sale is not ruled however.

The technology sector is likely to outperform the markets in the coming days as the composite scrips are showing signs of relative strength on the short term charts.

The "buy" recommendation on TCS yesterday is in the money and short term traders may lock in gains, whereas patient investors are advised to hold on as the wave count remains positive.

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.