Weekly market view
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Sept 13, 2003 |
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The value of shares advancing was Rs. 17064 crores and the value of shares declining was Rs. 17791 crores. This indicates a broader selling bias. The total traded volume on the BSE was Rs. 10618 Crores. The total traded volume on the NSE was Rs. 24317 Crores.
The week saw a deep correction setting into the markets as the 7 week long winning streak of the indices came to an end. The indices were showing ominous signs of fatigue as we had been pointing out that the upsides were lacking conviction. The hypothesis that we had put forth was that volumes were higher on negative market days and lower on bullish days. That hypothesis has been vindicated as the weekly bar chart of the indices have also exhibited a bar reversal. Traded volumes were higher on a week-on-week basis and the market breadth was highly bearish. That is a sign of concern. The index heavy-weights turned weak which shows that the correction maybe stretched out as compared to the previous corrections. The sensex was boosted by BHEL, Castrol, Cipla, Dr. Reddy, Glaxo, HPCL, ICICI Bank, L&T, Nestle and SBI. The Sensex was dragged down by ACC, Bajaj Auto, Colgate, Gujarat Ambuja Cements, HCL Tech, HDFC, Hero Honda, Hind Lever, Hindalco, Infosys, ITC Ltd, MTNL, Ranbaxy, Reliance, Satyam Computers, Telco, Tisco and Zee Telefilms. The rupee ended the week at 45.79 ( + 00.09) levels against the US $.
The markets are undergoing the much awaited correction which was so widely expected that it should have come as no great surprise. The build-up of bearish pressure had commenced with the HPCL & BPCL disinvestment being delayed, petroleum products price hike, SEBI enquiry into the stock price movements and margins in the F&O segment shooting up due to saturation levels being hit by a large number of stocks. Adding to these will be the news of FII's selling equities to the extent of Rs 88 crores on Sept 11. This snaps an inflow stream which was hitherto consistent - which may unnerve market players. It may also be noted that the market breadth has been extremely bearish, traded volumes were high and markets made bar reversals on daily and weekly charts. This spells a distribution pattern in technical terms and should be construed as the inflection point for cautious players. Of the entire traded volumes on both the exchanges this week, the entire 100 % transacted was on bearish market breadth days. The international markets ( especially the US & UK ) have been under pressure and the firming Rupee is affecting exports. As long as the markets were rising, all the negatives were disregarded, but these factors will probably come into play now. The coming week will see weakness in the initial part and stability in the latter half - barring unforeseen circumstances. The fact that the open interest in a large number of stock futures has actually gone up ( refer above table ) is a slightly positive indicator. The put / call ratio is stable at the 0.25 : 1 levels which indicates that the retail participants are unwilling to surrender their long positions. Should this trend continue and the optimism prevails, there will be buying support at lower levels. The pre-result build-up in positions should be witnessed if the sentiments revive. Keep you ears to the ground for signs of accumulation / distribution in the coming 3 sessions which are crucial for the markets. Overall, we expect the markets to witness the much awaited consolidation.
The daily chart of the Nifty shows a fall below the 13 day SMA. It maybe noted that the index has not fallen below this index on a closing basis since the second half of July 2003. The daily chart had been exhibiting bar reversals and we were advocating abundant caution frequently. Last week we had advocated that the Nifty had support at 1350 - 1360 levels ( click here to see previous weeks files ) and that computation has been vindicated as the Nifty has made an intra-day low of 1367. In our view, the immediate support for Monday maybe at 1350 - 1355, whereas the absolute support for the week ahead will be at 1301 levels. It maybe observed from the graphic below that the price retracement theory computes the 38 % fall upto 1300 levels which coincides with the 30 day SMA. This makes this level a meaningful support. Intra-day traders may expect a slight relief rally at 1350 - 1360 levels and attempt short term plays. On the upsides, expect the resistance to come at the 1382 & 1397 levels on an immediate basis. However, a fresh upmove can occur only if the Nifty surpasses the 1432 levels on a sustained closing basis with higher volumes and a positive market breadth.
Our outlook on the Nifty is that of caution and just as we had advocated last week, avoid aggressive positions till the markets settle.
We advise our investors to exercise caution and we repeat our advise to trade fewer stocks and have a focused approach. Do not spread yourself too thin by playing a large number of counters or leveraging your risk capital excessively. Capital preservation should be the order of the day. We feel the prudent thing to do would be to allocate higher resources to our steady income strategies. For stock specific recommendations, please refer to our special edition, " Flavours of the week " Please view our archives of previous editions of Flavours of the week.
The author is a Mumbai based investment consultant and invites feedback at Vijay@BSPLindia.com and (022) 23438482 / 23400345. SEBI disclosure - The author has no positions in the stocks mentioned above.
Legal notice - The professional Ticker Reader is a trademark of Bhambwani Securities (P) Ltd. and any un-authorised replication / duplication in part or full will be infringing our trademark and will result in legal action being enforced on the infringing persons / parties. |
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