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Market upmove should continue in the near term

Traders should stick to the trend and avoid overleveraging in the derivatives segment to increase the overall profit potential

Rajesh Jain 

After the special trading session on Saturday, the Nifty concluded the week with a gain of close to two per cent, following the substantial recovery witnessed on Friday to close above the 5,350 levels. It traded with a declining bias till Thursday and tested the crucial support zone at around 5,200. The existence of long-term averages on the daily chart (100 EMA & 200 EMA) at around the 5,180-5,200 zone and lack of volume on the cash front in the last traded week lightened the bearish bias, triggering a sudden surge in the end.

Adding to persistence of the 5,200 level, the Fibonacci retracement zone of 38.20 per cent coincided with the 5,210 level (placed from the low of 4,531.15 level on December 20, 2011 to the high of 5,629.95 tested on February 22, 2012). Besides, it just filled the gap existing around the 5,220 zone and tested the uptrend line formed by taking the lows of June 4, i.e. 4,770.35 levels and July 26, 2012 i.e. 5,032.40 level. All these facts indicate a strong possibility of continuation of the northward move in the near term. The 5,450-5,500 zone would be the crucial hurdle and the one around 5,150-5,200 will act as a cushion in case of any decline. Importantly, buying on the cash front with significant rise in volume is needed for sustained growth.

On the sectoral front, IT and Tech clearly outshone peers, even as others recovered from the oversold territory. The underperformance in banking and metal fronts has been the main reason for the previous decline in the broader indices. So, these sectors need to consolidate and show pullback rise to take the market higher in the near future. On the banking front, ICICI Bank and SBI could provide the needed trigger, followed by PSU banks, as these are also trading around the monthly support zone. We might see stock-specific moves in accordance with the prevailing scenario where the stocks have outperformed the broader index, despite lacklustre moves. Accordingly, one may consider buying for the short term in the following counters - Cairn India, Dr. Reddy’s Labs, Financial Technologies, Havells India and M&M, while oil marketing stocks like HPCL, BPCL and IOC might struggle on the back of a delayed fuel price hike.

Going ahead, advance tax numbers for the second quarter, due on September 15 could provide the feel on likely corporate earnings. In the impending weeks, the monetary policy review by RBI scheduled for September 17 and prior to that a two-day policy meeting of the US Federal Reserve slated for September 12-13 on interest rates will add to the clarity over the direction ahead.

Considering the scenario on the global front, Asian are currently underperforming and India is no exception. With the US topping the tally, followed by its European counterparts, we might see positivity building up at our front, too. So, one should be cautious and keep a close eye on the world for further cues.

The gradual decline in the dollar index should prevail for a sustainable run across the equity space. Keeping in mind all these mentioned facts, traders should stick to the trend and avoid overleveraging in the derivatives segment to increase the overall profit potential.

The author is EVP & Head - Retail Research, Religare Securities

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First Published: Mon, September 10 2012. 00:23 IST