After six straight sessions of trading up, the market finally bounced down from a critical resistance. The Nifty moved more or less in tandem with the Sensex. Thus the week ended with net gains but the market's upward momentum may have broken on the last day. Also the background and breadth indicators remained weak and indecisive.
The Sensex ended up 2.16 per cent while the Nifty was up by 3.03 per cent. The rupee's solidity versus the greenback 1.53 percent while the BSE200 only gained 1.5 percent. Broader indicators showed that the rise was top-heavy. While trading volumes improved a little over last week's lacklustre levels, they were not very large in absolute terms and they dropped noticeably on Wednesday and Thursday. The low voilumes make the rise in prices suspicious since they are an indication of low demand.
The ratio of advances to declines remained negative for the week despite the advance of major market indices. There were 628 gainers versus 795 losers while 160 scrips retained values. This is a negative divergence with upwards movement and a clear indication that the market is weaker than its appears at first glance.
The lack of participation with 5000-odd scrips remaining untraded remains a nagging problem and an indication of how thin this market really is. Another indication of serious problems is that FIIs have not really returned to te boruses since the installation of the Gujral government. Not surprising for there has been one political shock after another coupled to the huge implications of the CRB scam.
The short term uptrend broke in mid session on Thursday. The current short term trend must be down. It would find its first reliable support around 3750 points. The intermediate trend seems difficult to read, while the long term trend must still be termed bullish.
A technically critical resistance was the zone immediately above 3870 points. If the Senesex had been able to sustain itself above that level for a couple of sessions, the intermediate trend would been clearly up. But, although the market cleared that barrier it dropped below again on immediate hammering.
As to the long term trend, it cannot be questioned almost by definition if the market remains above 3575 points. If it dips below that, then the 3300 points level becomes the key rallying zone. Obviously at current levels we must assume that the market has been up since the second week of December 1996.
The immediate future appears to indicate further fence-sitting by many large investors. At least until the political problems are resolved, or the market falls. Also there is a fundamental need to see whether normal monsoon forecasts hold and the economy pulls out of the mini recession. Probably serious investors will not commit themselves until it becomes obvious whether the September 1997 results show substantial improvement over the last half.
Technically that could mean range trading between 3600 -4000 points assuming the political situation remains normal.In that case, the long term uptrend will remain undisturbed while the intermediate trend goes sideways and the short term trend switches up and down.
Technically, there can only be a dramatic improvement in the long term trend if there is rise in the index coupled to a rise in trading volumes and healthy advance-decline ratios. Greater participation in the market is alos neccessary - moribund scrips must once again witness trading interest. This must require an improvement in both fundamental economic terms as well as a perception that the political equation has stabilised.
