The Market Marks Time
This was one of those nothing weeks with everybody dedicatedly fence-sitting. The elections must now take centrestage and huge amounts of action are unlikely until some verdict emerges. While manifestos are being scrutinised no operator will really take them seriously until after the ballot.
Post-election, the market could firm up in the short-term if the previous trend holds. However action right now features around short-covering and some selective buying by those with nerves of steel. My gutfeel is that this is an excellent moment to buy. The market is unlikely to drop much further in the next three weeks since it is close to a strong support.
The bottom at 3164 levels last fortnight is likely to be a key level while 3395 on the upside will also be a critical resistance. The market recovered from 3164 level on high volumes which is a good signal and a breach of 3395 mark may push the Sensex upto 3485-3500 levels without a blink.
Above that level there are several serious resistances which are unlikely to be breached unless the longterm trend reverses and becomes clearly bullish again.
The week was characterised by narrow range trading and low volumes. The rupee hardened enough for the RBI to reverse its forex strategy to control rupee over-appreciation. Call rates stabilised at around 11 per cent.
The Sensex ended the week on 3366.70 points while the Nifty went to 977.65 points. The Sensex gained 4.41 per cent while the Nifty rose 1.47 per cent since last week. Most of the difference can be attributed to Id-trading on the NSE which led to a sharp uptrend on Dalal Street as prices corrected on Monday.
Other large-cap indices also showed uptrends. The Dollex gained 3.01 per cent while the BSE200 rose 2.56 per cent. The difference being due to the rupee firming. The Mid caps and smallcaps showed a negative divergence. The BS Midcap 100 and Midcap 250 lost 0.10 per cent and 0.67 per cent respectively while the BS-Smallcap index went down 2.86 per cent.
The negative divergence was confirmed by the background signals. Trading volumes dipped. The ratio of advances to declines was poor at 438 shares rising while 538 shares dropped. All this means trading is increasingly being concentrated in largecaps and there is very little actual demand.
The Sensex is currently in a short-term uptrend. This is being driven almost totally by short-covering with perhaps a few longterm investors taking long positions. The intermediate trend is still bearish by definition.
It will remain that way until a pattern of higher tops is established by beating 3485 or higher bottoms with support coming above 3164 on the next short-term downtrend.
The long term trend is also negative and there is little chance of it changing unless the Sensex beats 3575 and 3727 in the same upmove on significantly higher volumes than currently registered. Fibonacci followers will look for March 6 to be a key swing day.
The support around 3164-3300 looks fairly solid and its unlikely there will be a significant fall before the elctions are over. Post-elections a two month honeymoon and firming can be empirically expected.
Strong ForeignInstitutional Investor participation will only come back on confidence in a stable government and a friendly finance minister. But the lack of downside risk makes longterm buying attractive at current levels. A sensible bull could hardly lose over a 6 to 12 month perspective .