Market Rises To New High

The bullrun continued amidst many cheers. Both the Sensex and the Nifty hit new 52-week highs during this week and although they pulled back somewhat, they remained above psychologically important levels. ThiS makes the thiRd straight week that has ended with net gains. However there are signs that a short term pullback is overdue.

The sensex rose to dizzy intra-day heights of 4148 points before the inevitable profit-taking pulled the market back slightly. However it was consistently held above the 4000 mark, trading in a narrow zone. The week ended with the Sensex up by 1.31 per cent, the Nifty was up by 3.36 per cent. Broader indices such as the BSE-200 and Dollex also rose by 1.14 each which is a sign of the rupees current stability versus the dollar.

 

Short-term interest rates have also started smoothening out after fears of an SBI-strike was allayed.

The rise through this period was sparked by a peculiar combination of long-term investors like FIIs returning to the market combined with major speculative activity. Most scrips are currently in a no-delivery period which cancelled the impact of the Bihar fodder scam, El Nino adversely affecting the monsoon and indifferent results. Reliances bonus prospects and SBIs decent performance also buoyed sentiment.

The breadth indicators remained reasonable. The Advances to declines ratio was positive with 748 gainers versus 653 losers and 148 scrips trading actively and holding values. Trading volumes were generally high despite not hitting the peaks of Friday the 13th. The BS Medium Cap index , SIMI rose by 1.41 percent while the BS Smallcaps index went up by 0.72 per cent. However, the lack of a trickledown effect inducing more activity in the 5500 scrip which appear moribund means that there is a long way to go before a fullscale bullphase occurs. The bulk of the volume is still concentrated in a handful of scrips.

The intermediate and long term trend of the market appear positive. The Short term term trend may be starting to react. It moved down from its Wednesday peak and then declined again on Friday. A tough battle is on between bulls and bears in the zone between 4050-4150 points. Since the bulk of pivotals are technically overbought, and the short trend has been bullish for over a fortnight, a small reaction is extremely likely. The next support zone is at 4030 points and if that is breached the market should look for support around 3950. On the upside, stiff resistance starts at 4130 and to maintain the intermediate uptrend, the mark of 4148 should be exceeded in the next month.

While things appear rosy enough at the moment, the problems of the timing and impact of an oil-price hike remain. The likely split in the Janata Dal due to the fodder scam will also have inevitable repercussions in a market craving political stability. Also, if El Nino does indeed destory the monsoon prospects, the economic fundamentals obviously worsen. So the six-month old bull market could still face a few hiccups.