Minor rally on bourses possible

The US-Iraq spat continues to dominate sentiment, and will continue to do so till there is clarity on the issue.

The alienation of the US in the Security Council seems to indicate that war clouds have receded for the moment. The result - a sharp rally in the Dow Jones and Nasdaq indices.

This pullback may see a corrective rally in the domestic markets too in the early part of the coming week.

The domestic triggers would be the permission granted by Sebi to Grasim for the open offer of L&T, Telco making aggressive forays in the UK markets and technical considerations.

The threat of war, however, has not been totally eliminated, and the coming week is going to be truncated on account of the holiday on Holi.

Therefore, traded volumes are likely to be lower and volatility maybe higher.

All in all, expect a bounce in the first half of the week, but don't expect a complete reversal of the bearish trend.

The week that was

The Sensex opened at the 3,152-levels, and moved between a high of 3,162 and low of 3,086-levels before closing the week at 3,108 - a decline of 45 points.

The advance-decline ratio was 3,334:4,946. While the value of advancing shares was Rs 5,520 crore, declining shares totalled Rs 7,619 crore. This indicates a broad selling bias.

The markets opened on a shaky footing, and the closing level was pretty much near the intra-week low. This is, indeed, a sign of extreme caution. The traded volume continued to be low, and the market breadth was clearly negative. The put-call ratio at 0.63:1 has turned even more negative.

Technicals

The weekly bar chart of the Nifty shows a falling trendline, which was surpassed in November 2002 in the on-going rally. As per technical analysis, violated resistance becomes an immediate support and immediate inflection point. Therefore, we feel that the 980-levels maybe an immediate support from where the markets are likely to see a small bounce.

The slower oscillators are in a sell mode, and therefore the overall trend remains bearish. The short-term momentum oscillators are in an oversold level and signal a small pull back.

Traders may buy the Nifty at 990 levels, but don't expect any level above 1,025-1,032. Rapid profit-booking is advocated whenever long positions are in-the-money.

Your call of action

We still maintain a cautious approach, though we expect a relief rally next week. The extent of the rally will decide whether the markets have seen the worse or not. Traded quantum must be kept at manageable levels and stop losses maintained diligently.

Have a profitable week.

The author is CEO of Bsplindia.com and a Mumbai-based investment consultant. Sebi disclosure: The author has no positions in the stocks mentioned above.