Profit taking to limit upsides

The market continued to gain upward momentum which commenced in the previous trading session. The bullish activity which commenced with a morning attack by the bulls on the bears on Tuesday morning extended its tenure.

There exists a possibility of the move extending to the third session as per technical studies. The indices have managed to claw back into their upward sloping channels which commenced 15 weeks ago.

The market breadth was a continuation of the previous session's bullish outlook and the numbers on BSE & NSE combined point to a bullish undertone for now - 2059 : 1399.

The capitalisation of the market breadth also confirms the buying momentum as the combined exchange figures were Rs 8,111 crore : Rs 2,056 crore.

Marrying the nuts and bolts of the cash market with the F&O segment further confirms the upward momentum in the near term as the open interest has increased on an uptick day with an easing of short positions in the individual stock segment.

The indices are likely to encounter resistance at the 2389 / 2396 on the Nifty and the 7854 for Sensex. The boost is likely to continue from the technology sector which is displaying higher relative strength compared with the broader markets and the benchmark indices.

The indices are also likely to be aided by select telecom, services and base metal counters. Traders need to continue keeping a keen eye on the combination of traded volumes, open interest and market breadth for the next few days to gauge the trend determination process.

The outlook for the markets on Thursday is that of cautious optimism as the upsides may witness some routine profit sales from short term bulls.

There is a likelihood of international news flow impacting the domestic market sentiments in the coming days, which means higher volatility on truncated traded volumes.

Fresh trades must be initiated on lower volumes only to protect the risk capital. I would continue to advocate writing deeply out of money calls and puts in the near month series to avail of the premium.

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.