Thin volumes cast cloud

TECHNICALS

The bourses kicked off a new week on a firm note, and the benchmark indices gained almost 2.5 per cent on Monday.

Traded volumes were significantly thinner, which makes this upmove suspect for now. The market breadth was positive as the advances to declines ratio on Bombay Stock Exchange and the National Stock Exchange combined stood at 1929 : 770.

The capitalisation of the breadth was also positive as the numbers on the two exchanges taken together stood at Rs 6,660 crore : Rs 249 crore.

Derivatives data available for the previous session shows a marginal increase in open interest "" outstanding contracts are still below the Rs 8,000 crore mark seen at closing on Friday.

The indices have surged strongly but on extremely poor volumes. This remains a cause for concern in the absolute near term, the chartical resistance is also not distant.

Meanwhile, Nifty is likely to encounter resistance at the 1915 levels and the Sensex at the 5985 levels in the next session.

On the lower side, expect support at the 1860 and the 5866 levels in the immediate future. The importance of the traded volumes / market breath and price movement co-relation cannot be emphasised enough as the upmove needs to be far more convincing to sustain itself.

The outlook for the markets on Tuesday is that cautious optimism as the initial part of the session is likely to see follow up buying, but we expect the rally to encounter profit taking at higher levels.

The leads to the direction will come from the technology, automobiles, commodity and cement stocks in the next two sessions.

I would advocate selling Nifty straddles at very conservative strike prices as the most defensive strategy in the coming days. Trades must still be executed in small quantities, as volatility is likely to be high.

Vijay L Bhambwani
CEO, BSPLindia.com

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com or (022) 23400345 / 23438482.

Sebi disclosure: The analyst has no exposure to the scrips mentioned above.