The markets opened on a strong note today and witnessed profit-booking at higher levels in the latter half of the session. The Bombay Stock Exchange (BSE) sensex ended at 3175.56 points (33.95 higher than Friday's levels), while the National Stock Exchange (NSE) finished the day at 1026.20 (up 6.05).
The market breadth was still positive as the combined advances-to-declines ratio on both the exchanges was at 1,378:848, and the traded volume was lower at Rs 1,402 crore on the BSE and Rs 2,915 crore on the NSE. The profit-taking was mainly seen in the technology sector which saw pruning of positions due to expiry of derivative series in November.
The index heavyweights have not seen any significant follow-up buying support and that is a sign of a change in the upward momentum.
The outlook for Wednesday's trading session is that of cautiousness as the markets are appearing overbought on short-term momentum oscillators. We expect a correction downwards as the Nifty is approaching a crucial resistance level at 1025 and then at 1037.
Beyond these levels, there is a significant 200-day simple moving average resistance at 1,054 levels.
We advocate selected profit-booking in long positions and locking in gains. Fresh positions on the long side should be avoided till the downward correction is completed.
Derivative traders should continue to hold/execute a bear call spread on the Nifty to exploit any downside. However, the exposure should be kept to a minimum.
Vijay Bhambwani
(CEO, BSPLindia.com)
SEBI disclosure: The author has no exposure in any securities mentioned above.
The author is a Mumbai based investment consultant and invites feedback at vijay@bsplindia.com.