Short-Covering To The Fore

The bourses switched the week on on a very firm note following good gains in the US market over the weekend.

The trend just continued throughout the day thanks to short covering more than fresh buying.

The benchmark Bombay Stock Exchange (BSE) sensex ended the day at 3282.45 (up 59.04 points) and the National Stock Exchange (NSE) Nifty 50 at 1058.20 (up 22.20 points).

Traded volume stood at Rs 1,082 crore and Rs 2,383 crore on the BSE and the NSE, respectively.

The market breadth was very positive with the advances to declines figures on the two exchanges combined at 1677: 455.

 

The capitalisation of the breadth was also positive as the figures on the BSE and the NSE together stood at Rs 3400 crore : Rs 60 crore.

The trading pattern suggests that since the markets opened with a gap upwards, there was actually more short-covering in the frontline stocks initially leading to a trickledown effect on the smaller-cap counters.

Poor volumes remain a cause for concern as the retail investor is still waiting and watching.

The market breadth capitalisation bares a polarisation of buying around select index scrips.

A broader based buying on heavier volumes is needed to signal a secular and sustainable rally.

The indices have taken support at their 200-day simple moving average levels and that has been a meaningful support for over 5 weeks now.

The levels of 1035 and 3200 should, therefore, be taken as benchmark short-term supports for the Nifty and the sensex, respectively.

On the higher side, 1074 and 3320 are the crucial short-term resistance levels on the NSE and the BSE, respectively.

In my view, these resistance levels must be breached before a lay investor starts betting money on equities again.

The outlook for Tuesday is one of cautious optimism as the US markets are to remain closed due to a local holiday.

Day traders may buy Bhel above Rs 209, Tata Engineering above Rs 165, Reliance and L&T above Rs 200.

Derivatives traders are advised to buy call options in Bhel, Tata Engineering and Reliance in the near-month series at out-of-money strike prices.

Watch out for the general trend and trade based on it.

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.