Hectic short covering on declines seen

TECHNICALS

The markets opened on an optimistic note and proceeded to consolidate through the day. The benchmark indices saw minor changes as the bulls shied away from large scale support, though hectic short covering was seen on declines.

Traded volumes were lower than the previous session as the intraday participation was impacted due to a narrow intraday range.

Market breadth was marginally negative as the BSE and NSE combined figures were 1699 : 1800 and the capitalisation of the breadth was positive as the figures on a BSE & NSE combined basis were Rs 7365 cr : Rs 3714 cr. The F&O data for the previous session indicate that the bulls are preferring to buy at lower levels.

The indices have closed at the upper end of the intraday range, though on lower volumes and negative market breadth. Declines are triggering short covering, which is a positive indicator.

The 4049 level advocated as a resistance was not even tested, as was the case with the 3083 support. This is an indication of a shrinking range, as the session was an "inside day" - the day's intraday fluctuation being within the previous day's range.

This points towards a possibility of the indices making a decisive move in the coming day as the narrowing price formation is a precursor to a breakout / breakdown.

The coming session should witness intraday levels of 4031 on advances and 3998 on declines. I continue to advocate resistance at the 4040 threshold which the bulls must overcome with force to take the markets forward to the next leg of the upmove.

The outlook for the markets on Friday is that of guarded optimism as the weekend factor coupled with pending news flow based triggers are likely to keep the commitment levels of the bulls under check.

Though traded volumes may spike higher, fresh aggressive buying in terms of fresh long open interest may not be forthcoming - unless the 4040 breakout is seen convincingly.

Vijay L. Bhambwani (CEO- BSPLindia.com )

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com or ( 022 ) 23438482 / 23400345.

Mandatory disclosure - the analyst has no exposure to the scrips mentioned above.