Trend Reversal Likely In May
The market had obviously discounted rollbacks before they were duly announced. The dilution of the Finance Bill proposals barely enthused the market which remained stuck in a lacklustre trading pattern. We are unlikely to see much improvement before the Gujarat debate on April 30, at least.
The sensex settled at 3371.7 points for a nominal 0.22 per cent gain. The broader indices all showed declines including the Nifty which ended 0.26 per cent lower at 1097.4 and the Defty, which was down 0.42 with the rupee under pressure. The Broad BSE500 was off by 0.36 per cent. Other breadth indicators were also poor.
Declines outweighed advances almost 2:1, volumes dipped on Friday and the Put Call was higher although not yet in a zone where it typically signals an intermediate bottom.
The market has found support twice in the 1089-1090 range, equivalent to Sensex 3335 but this looks fragile. A breakdown to the 3300 or even the 3285 level is likely before the bottom is struck.
The 3275-3290 range is where 200 DMA is roaming and this is traditionally a zone of solid support in a basically bullish market. We may well see those levels tested next week on political instability.
If earlier time zone calculations and retracement analysis was reasonably accurate, we could see a turnaround within the first 10 sessions of May. The long-term trend of the market still looks reasonably bullish as it has been since the bottom on September 21. So this is a useful opportunity for the long-term investor or the trader prepared to go long in every dip.
The effect of result-specific speculation is causing peculiar ripples in the market. Among the stock that could move up next week are ABB, Adani Exports, Aftek Infosys, Arvind Mills, Crisil, Gujarat Gas, HDFC, IPCL, Indo Gulf Fertilisers, L&T, Shyam Tele, Siemens, Thermax, Tisco, Titan, TVS Motor. Perhaps there is a pattern here but it's not immediately obvious.
Assuming that the market is fairly close to a bottom, which could come at a Nifty equivalent of 1065-1075, there isn't much profit in taking puts. May and June Calls at 1120, 1140 and 1160 could all prove profitable. The index Futures position is rather confused, given the settlement on Thursday. Buying the May Nifty future could be an excellent bet.
To recap, the market could fall another 1 per cent or so over the next week. A break below support at 3275 looks unlikely but if it occurs it would have very serious implications. A trend reversal could occur in the first 10 sessions of May. Calls at 1120,1140 and 1160 may all prove profitable. Many individual stocks could move in the opposite direction to the market.