Trend remains positive

Macro Technicals

 Bulls continued on their merry way with enthusiastic buying towards the weekend. The Sensex closed at 3815.31 points, an advance of 2.38 per cent while the Nifty was up 2.84 per cent at 1195.75 points. The Defty also rose by 2.84 in a week when currency values remained stable.

 Breadth indicators remained fair although they weakened in comparison to the previous week. The broad BSE 500 rose by 2.93 per cent while trading volumes were excellent on Thursday and Friday.

 Advances outnumbered declines albeit not by a large margin. The Nifty put-call ratio was around 0.27, which is in the highly overbought zone.

 Outlook: The market has seen a net rise since the first week of May. After 13 weeks, it must be close to an intermediate reversal but it has belied normal behaviour patterns in the last two weeks.

 We would expect a pattern of continuing volatility with a very high probability that any short-term weakness could turn into several weeks of losses.

 However, the trend as such still remains positive. The risk in staying fully invested can be understood by looking at support-resistance levels.

 On the upside, expect resistance at Sensex 3830-3850/Nifty 1200-1210 while any reversal could pull prices down to 3550 Sensex/1100 Nifty levels. Obviously, the downside risk is higher than the possibility of gains.

 Rationale: As things stand, the momentum indicators are fair and backing the trend. However, intermediate trends don