Lack of conviction on the upsides

Technicals

The markets ended with a sombre trading pattern that unfolded in the latter half of Tuesday's session.

Traded volumes were significantly higher than the 10-day average. I have been repeatedly pointing out that negative market breadth witnesses a high volume trading pattern.

The breadth today was very negative as the advances to declines figures on the BSE and NSE combined were 731: 2001.

The capitalisation of the breadth was also negative as the figures on the two bourses taken together stood at Rs 3,945 crore: Rs 4,316 crore.

The Nifty has failed to closed above 1423 levels (the February 2001 top ) for the second consecutive day, which makes the upmove slightly shaky.

There is a lack of conviction on the upsides as buyers are unwilling to make large commitments and sellers tend to be trigger-happy whenever unloading occurs.

The commodity channel index is showing a congested reading which makes the present upmove as unsustainable without a minor correction.

The said correction can be in the form of a fall or even be a sideways movement for a few sessions.

Once the 1423 levels are convincingly overcome, expect the 1465 to be the next resistance point.

Sectoral polarisation will be witnessed on the software, oil & gas, automobile, pharmaceuticals and cement shares.

PSU stocks may see a consolidation at the present levels. Expect support on the Nifty at the 1375 levels for the upcoming session.

The outlook for Wednesday is of cautious optimism as I expect the stocks to change hands as weaker bulls surrender their positions to stronger hands.

Among stocks, ONGC is exhibiting tremendous relative strength as the counter gains momentum ever since it surpassed the Rs 660 resistance zone.

Maintain a stop-loss at Rs 630 levels and expect the scrip to test Rs 730 levels.

Keep traded volumes under check due to higher volatility.

Vijay Bhambwani

CEO, BSPLindia.com

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com.

Sebi disclosure: The analyst has no exposure to the scrips mentioned above.