Possibility of a shakeout

TECHNICALS

The markets opened on a bullish note and proceeded to trade lower through the day. The benchmark indices collapsed in the final hour of trade as weaker hands preferred to surrender positions.

Traded volumes were higher than the previous session which makes the immediate outlook slightly weak. The market breadth was highly negative as the BSE and NSE combined figures were 1113 : 2094 and the capitalisation of the breadth was also negative.

The derivatives data for the previous session indicate a marginal build-up of 0.5 per cent in net long positions and a rising PCR as the shorts were seen building up at higher levels.

The indices have closed at the lower end of the intraday band and that is a sign of concern. That the fall was on higher volumes and negative breadth makes the outlook weak in the absolute near term.

It should be remembered that the fall has come at the significant high of the ongoing rally and high volatility at peaks is not alien to the markets.

Coming close on the heels of a "bullish shakeout pattern" on last Monday, I feel the current fall should not be taken too alarmingly, though caution is called for.

The 3461 intraday support specified yesterday was conclusively violated, though the 3523 top was not even tested. The coming session is likely to witness intraday levels of 3394 on declines and 3488 on advances, should a bounce back be seen.

The outlook for Wednesday is that of abundant caution as the immediate outlook appears to be laced with nervousness. Upsides are likely to witness unloading by the weaker hands and there is a possibility of a shakeout in the markets.

Index heavyweights are appearing to be under pressure and unless buying momentum is seen on heavyweights, the corrective phase may persist for now. The medium- and long-term trend, however, remains intact.

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.