Short covering to cushion falls

TECHNICALS

The markets opened on a steady note and proceeded to trade higher through the day. The benchmark indices gained back all that was lost in the previous session. The traded volumes were marginally higher ( after factoring in the bulk deals ).

The market breadth was highly positive as the BSE and NSE combined figures were 2383 : 886 and the capitalisation of the breadth was also positive as the figures on a BSE & NSE combined basis were Rs 20,447 crore : Rs 456 crore.

The indices have shown absolute strength as the closing levels were nearly at the intraday highs of the session's trading range. The higher traded volumes and positive market breadth is indicating an optimism as the lower levels are attracting buying interest.

As advocated yesterday, the Nifty has indeed witnessed support at the 2724 levels and bounced from there. That shows a support at the short term simple moving average and a retracement support. The 2777 levels will be the immediate support on an intraday basis on the Nifty and the 2818 - 2824 levels will be the resistance on the upside.

Traders will need to continue monitoring the open interest, traded volumes and market breadth for signs of short term trend determination.

The outlook for the markets on Wednesday is that of cautious optimism as the impending expiry of the December derivatives series will see players focusing on rollover/ squaring off their open trades.

I foresee short covering to cushion the falls and limit the down sides in the immediate future. Technology counters will continue to rule the roost and stock specific activity will be seen on TCS which continues to display higher relative strength as compared to the broader markets.

Long positions initiated earlier maybe held and fresh buys maybe initiated on declines. Buying may be initiated in the cash and derivatives segment in small to medium lots.

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.