Time for abundant caution

Technicals

 The benchmark indices lost over 2 per cent as the index heavyweights came under heavy selling. Traded volumes were lower than the average 10-day figure.

 The market breadth was highly negative as the advances to declines figures on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) combined stood at 640 : 1632.

 The capitalisation of the breadth was also negative as the figures were Rs 436 crore : Rs 5,683 crore on the two bourses taken together.

 The indices have retraced further after a two-day correction and the likelihood of a support in the short term is at the 30-day SMAs, which are currently placed at the 1448 and 4590 on the Nifty and Sensex, respectively. The upsides will see resistance at 1510 and 4760 on the indices.

 For the barometers to signal a conclusive breakout from the current corrective phase, it is necessary that the previous significant highs of 1574 and 4951 be surpassed with high volumes and a positive market breadth.

 The outlook for Tuesday is of abundant caution as selling pressure is seen accelerating and rallies may see selling by nervous bulls who will provide upside resistance.

 The most prudent strategy would be to stick to the options route, especially the bear call spreads on the Nifty, Infosys, Reliance and Hindustan Lever.

 That will limit the losses in case of a revival in the sentiments and give good profits on capital employed. Traded volumes should be kept lower due to the bearish sentiments prevailing.

 Vijay Bhambwani

 CEO, BSPLindia.com

 The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com.

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