Signs of concern abound

TECHNICALS

Thursday's trading began on a nervous note and ended with a 2 per cent loss as important support levels were breached.

Traded volumes were sharply lower compared with Wednesday's session and the 10-day average. The market breadth was highly negative with declines trumping advances 1853: 785 on the Bombay Stock Exchange and the National Stock Exchange combined.

The capitalisation of the breadth was highly negative too with the figures on the two exchanges taken together at Rs 6,581 crore : Rs 624 crore. The derivatives figures available for Wednesday's session show a marginal rise in outstanding long positions by about Rs 80 crore.

That is a sign of concern as there is a lack of conviction among the bulls at lower levels. The transacted volumes were lower too as the participation is limited.

The indices have fallen through the short-term supports provided by the upward sloping trendlines and the mood is therefore of abundant caution.

The violation of the 1800 and 5650 levels on the Nifty and Sensex, respectively, is a sign of concern as the psychological damage to the players apart, there is likely to be a widespread tendency to trigger stop-losses as values face attrition.

The immediate support for the markets is likely to be at the 1785 and 5595 levels, which are the last mile support before the triple bottoms of 1750 and 5550 are tested.

As I have stated earlier, the indices are making lower tops and this time, the crucial supports may therefore be violated.

Over the last few weeks, Fridays have been uptick days on institutional buying, so there is a slight chance of that coming into play again tomorrow.

However, players should make no mistake "" this would constitute a relief rally only and the nervous bulls are likely to surrender their long positions on the upsides.

The outlook for the markets on Friday is that of caution as the bulls are clearly on the defensive and the technology sector is likely to be a drag on the benchmark indices.

Watch the US markets for directional guidance in the near term. I continue to advocate selling Nifty straddles at conservative strike prices and in minimal lots only.

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 author has no outstanding positions in any of the stocks mentioned above.