Make or Break?

A big move is coming. Watch 17,200 on the Sensex for a major decline

Last week, we had said that it is becoming hard for the market to continue to climb. Over an entire week, the Sensex went up by just 14 points. Indian markets opened the week strong on the back of firm trade data from China for December 2009 and expectations of strong December 2009 quarter results by India Inc. However, at the end of the day, the Sensex declined 14 points from the previous day’s close, ending the day at 17,527, while the Nifty closed at 5,249, up 5 points. On Tuesday, the market failed to sustain despite better-than-expected December 2009 quarter results from Infosys Technologies, which was announced before trading started. At end of the day, the Sensex declined 104 points from the previous day’s close at 17,423, while the Nifty closed at 5,210, down 39 points.

On Wednesday, markets remained highly volatile throughout the day as they opened lower from the previous day’s close on weak global cues, followed by China’s move to curb lending. However, at the end of the day, Indian markets shrugged off the weak global cues following strong industrial production data and on expectations that Indian firms may report good earnings in the third quarter.

The Sensex gained 87 points from the previous day’s close and recovered almost 250 points from the day’s low to end the day at 17,510, while the Nifty closed at 5,234, up 24 points. During the day, Asia’s key benchmark indices in Hong Kong, Japan, Indonesia, South Korea, Singapore and Taiwan fell by between 0.87%-2.59% while the Chinese index fell 3.09%. Since the Indian market bucked the global market trend, it seemed that another strong move was afoot which would take the Sensex past its recent high of 17,790. On Thursday, the Sensex gained 75 points. Trading started on a high note triggered by Asian stocks, which rebounded after a sharp decline on Tuesday. But after a robust opening, the market was sold off until it firmed up after the European market opened strong. The index touched a high of 17,628 and a low of 17,525 during the session. The Nifty ended at a provisional 5,259, higher by 0.48% or 25 points.

On Friday, the Sensex edged higher in early trading, tracking the higher Asian stocks. However, it pared early gains very soon and was mostly flat for the rest of the day. It closed at 17,554 points, 30 points lower than the previous day’s close. The US market was sold off on Friday; the Dow was down by 100 points.

Where do we go from here? The market’s trading band has narrowed down to an extreme. This usually presages a major move. We can’t say at this moment whether the market will end higher or lower but a big move is certainly coming. If the Asian markets open low on Monday and the Sensex ends below 17,200, that would be an early sign of reversal of the uptrend. The rise has gone on for too long without a correction and it’s time for bullishness to cool down a bit.
 

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    COMMENTS

    Anant Mundhra

    1 decade ago

    Sensex started strong with this year & went to touch its May high of 17700 but couldn't do tat & frm 17600 odd levels.

    Perhaps it may crack through this level in the coming week and rally sharply. This could happen on higher allocations by foreign institutional investors who invested nearly $1b, on Monday. The reason it has fallen back twice is because domestic mutual funds have been selling. The reason domestic mutual funds are selling is bcos public sector banks have been asked by RBI to reduce their exposure to equity markets and, following this, have sold Rs 1 lac crores (over $ 21b). In the wake of such selling, the market has held on is a sign of strength.

    I PITY the PSU banks, though, as they would lose out on the spurt.

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