Fii Purchases Boost Indices
Two things occurred that helped pull the market up in the midst of elections. One was that action in Levers-Ponds continued. The other factor was more far-reaching. FIIs started to come back into the market having apparently decided that India was a lower risk environment than the rest of Asia.
The BSE Sensex moved through a narrow range during the week. But it stayed consistently above last weeks levels and above the key 3395 resistance. The sensex ended the week on 3417.30 which is a 1.17 per cent gain on last week. The Nifty closed at 993.65 which was 1.95 per cent up on last week.
Last week the pullback was on the basis of bear-covering and frenetic action in Levers. This week, the buying was more widespread and seemed to come with more genuine demand. Trading volumes were significantly higher than the last fortnight and other background indicators were less negative.
The ratio of advance to declines was also positive which is an excellent signal. A total of 554 scrips gained while 493 scrips lost ground. Smaller scrip movements also showed a less negative pattern. The smallcaps index showed a gain of 0.92 per cent. The BS Midcaps -100 and Midcaps 250 showed respective gains of 2.21 per cent and 0.97 per cent each. This discrepancy in the moves between the Midcap -100 and Midcap -250 is typical of FII investment. The FIIs generally concentrate on larger midcaps which are included in the Midcaps-100 index rather than the Midcaps-250 which has smaller midcaps stocks.
Lets look at the market strictly from the chartist angle. After generating two higher bottoms which is bullish, the Sensex is now moving sideways above the 3395 zone which is an important support/resistance level. It has gained in volumes this week. Also trading while thin has been more widespread and the Advances - declines ratio has gone positive.
The sideways trading is a characteristic of election months - as we discussed in a previous article. But the Sensex is doing it with a slight positive bias and about 100-150 per cent higher than expected. This could all mean an intermediate trend which is going positive. The critical point now is 3485 points and the market has actually tested that resistance several times. A breakout past 3485 would confirm an intermediate trend reversal. If at all this occurs, it must happen around March 6, since Fibonacci time series analysis, suggest that there may be such a key swing day around March 6 - which gells nicely with election results being evident.
The longterm trend is still definitely negative and will be tested only by a breach of powerful resistance at 3575 followed by a top above 3727. That too on far higher volumes than currently evident. Its possible that the March 6 week could see that upside breakout at 3727 plus, if the market likes the post-election scenario.
Technically the market must have come fairly close to bottom at 3164 points. The last major market bottoms were 1980 in April 1993, followed by 2713 in December 1996. Assuming a very longterm secular uptrend, the Sensex should register a higher bottom than 2713 and its not likely to trade much below the 3000 mark.
Quite possibly 3164 points was indeed a major bottom. But such things take months to confirm since the long term downtrend that started in August 1997 could continue for a fair length of time. If the market doesnt turn in March along with the swearing in of a new government, it may turn with a decent Budget. Go bottom-fishing and hope.