The market still looks overbought; expect a dip in a day or two

The breakout we mentioned yesterday has taken the market higher. The Nifty was up 0.85% at 5,231 points from yesterday’s close of 5,198.10, while the BSE's 30-share index rose by 1% or 106.90 points at 17,490.08. Of course, selling took over after 1.30pm in the afternoon and the market came down in the end to the same level as the opening.

Despite the fact that the market looks overbought, the short-term trend is still up. Every single market in the Asia Pacific region was in the green except the NZX50.
 
Jakarta was the highest gainer (up 3.25%) followed by KOSPI (up 2.11%) and the Hang Seng was up by 1.72%. Shanghai’s index jumped 1.93% after a continuous slump from 11 March 2010. All this bullishness was followed by an overnight strength in US markets where the Dow was up 44 points, and the Nasdaq was up 16 points.

American markets closed in the green yesterday as the Federal Reserve announced that it was not tweaking interest rates as of now, a move which augurs well for risky assets such as emerging market equities. Until there is a sharp sign of reversal by the Fed and other central banks, the Indian market is going to push ahead, subject to short-term dips. All European markets were up at the time of writing.

Among the Nifty movers, Cipla Ltd was up 5.10% at Rs334, Idea Cellular Ltd was up 3.29% at Rs64.40, Hindalco Industries Ltd was up 2.42% at Rs173.65, and Larsen & Toubro was up 1.84% at Rs1,628.60 after the company announced that it had won an order worth over Rs1,000 crore from ONGC.

Among the major losers in the Nifty, Unitech Ltd shed 2% at Rs73.50, Maruti Suzuki was down 1.63% at Rs1,435, Tata Power was down 1.48% at Rs1,364.15, BPCL was down 1.27% at Rs538.35, and Hindustan Unilever was down 1.24% at Rs223.90. We expect the market to dip in a day or two. Whether that will signal the end of the rally since the Budget, only time will tell. Stocks remain highly overbought.