Fresh buying, short covering to check downside

Last week saw a pullback in the headline indices beginning Wednesday from the 5250 levels as a relief rally was advocated in this column.

The weekly combined exchange market breadth was negative as the figures were 7,811 : 13,610. The capitalisation of the breadth was also negative as the commensurate figures were Rs36,657 crore:Rs47,233 crore.

The NSE lost Rs195,102 crore in market capitalisation on a week-on-week basis. In terms of sectoral performance, the banking sector was a market outperformer with the sectoral index closing with mild gains.

Weakness was seen in the mid-caps, followed by the technology sector which continued to wilt under attrition.

Overseas investors were net sellers to the extent of Rs1,661 crore and that saw the rupee close at the 45.68 levels (previous week 45.56 levels). The US markets continued to surge higher as the geopolitical tensions eased for now in the Middle East.

The old economy Dow Jones Industrial Average rallied higher than the technology heavy Nasdaq and the UK FTSE continued to underperform the US benchmarks.

In the Asian region, Hong Kong and Singapore fell through the floor whereas China and Japan boosted the regional outlook.

The overseas cues remain mixed but optimistic and the domestic markets will need little nudging on declines to push values higher.

Technically, the markets have almost reached a critical support area and the downsides are likely to be calibrated by bear covering and fresh buying. Being in the oversold zone, the velocity of the decline has been easing of late.

The weekly range advocated last week between 5675 and 5250 was breached on the declines in a sell-off, which may not be repeated unless fresh negative news flow emerges. This week is likely to witness a range of 5550 - 5600 on the upsides as long as the 5350 holds as a support.

In case of declines, the support will be at the 5125 levels as long as the bears manage to keep the Nifty subdued below the 5275 levels.

My view in the previous week of a relief rally still remains in place as further upsides are possible and traders should nurse a bullish bias at least in the first half of the week. Traded exposure may be curtailed on fresh bullish trades, however.