Sunday, September 27, 2009

Markets likely to correct further
Book profit at regular intervals


As indicated in the last issue, the markets witnessed a correction amidst occasional bouts of short covering during the truncated last week. The Nifty continued to flirt with the 5000 level, as it struggled hard to close beyond it. Lack of follow-up buying at higher levels added to the concerns. The markets witnessed intermediate bouts of volatility and choppiness due to the expiry of the derivatives segment. The breadth of the market remained positive while the volumes recorded were lower than the previous week. Traders and speculators were seen booking profits at regular intervals and also going short while selectively buying at lower levels. Incidentally, FIIs remained net buyers in the cash segment but were net sellers in the derivative segment. Cash rich mutual funds were seen booking profits during the course of the week.

The global cues have remained mixed. The US economy displayed mixed economic data. Crude oil continued to trade around the $66 level. The Wholesale Price Index (WPI) continued to move higher. The WPI rose 0.37% for the week ended 12 September 2009 as against 0.12% for the week ended 5 September 2009 due to the increased prices of essential food items. The annual inflation rate was 12.42% during the corresponding week of 2008.

The Nifty is clearly struggling to sustain above the 5000 level. In fact, it stayed below it for three consecutive trading days, which is a negative sign for the markets. Follow-up buying remains elusive especially at higher levels. The markets continue to be placed in the overbought zone on weekly charts, which is leading to selling pressure and profit booking at regular levels. The negative divergence pattern formed on daily and weekly charts still holds good. Both these patterns have enough fire power to unleash the much anticipated correction in the next few days. To overcome these hindrances and the impact of these two patterns to be negated, it is necessary that the market moves and sustains above the Nifty 5000 level for a further uptrend to be witnessed. It is also important that follow up buying is witnessed above the 5000 level for the markets to move higher and test the 5230 level. However, this would happen only if some positive cues are witnessed especially on the domestic front. The next domestic trigger for markets would be the Q2 results, which would start pouring from the second week of October. But the overall market sentiment remains cautious. In the meanwhile, the markets would continue to take cues from global markets and crude prices in the absence of any domestic triggers.

Technically, on the upside the Sensex faces resistance at the 16750 and 17300 levels but seeks support at the 16000, 15600, and 15167 levels. On the upside, the Nifty faces resistance at the 5000, 5150 and 5230 levels while 4957, 4732 and 4655 are its important support levels.

Investors should book profit at regular intervals


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