Possibility of pullback rally exists

Last week witnessed a nervous pattern of trade even as selloffs were met with short covering on declines.

This was in line with the run-up to the derivatives expiry and saw the Nifty close with under-a-percent gain on a week-on-week basis.

The weekly turnover was lower than the prior week and the combined exchange weekly market breadth remained negative as the figures were 9,783 : 11,338.

The NSE saw a gain of `24,984 crore in market capitalisation on a week-on-week basis. In terms of sectoral performance, the banking stocks witnessed the highest buying interest and were followed by technology stocks, whereas the mid-cap segment closed with a little change.

Overseas investors were net sellers to the extent of `919.7 crore and that saw the rupee close at the 45.61 levels vis-a-vis the US dollar (previous week 45.36 levels). The US markets saw the DJIA gaining as it climbed to its highest weekly close after week ended June 13, 2008.

The Nasdaq Composite fell nearly 2% as was the case with the UK FTSE. In the Asian region, the markets were awash with red as the Chinese markets led the downtick followed by Japan, Singapore and Hong Kong.

Overseas cues have been negative and the domestic markets will need very strong domestic cues to rally against the external triggers.

Technically, the domestic markets remain in a falling trajectory, with a possibility of pullback rallies. The weekly range advocated for the Nifty between 6075 and 5475 has held as the index has displayed a truncated trading range on the weekly charts. This week will witness 5825 on advances as long as the bulls manage to keep the Nifty above the 5700 levels consistently.

The support will be at the 5550 levels below which the 5475 levels may be tested. Declines will become a higher probability event if the Nifty stays below the 5670 levels consistently. Beyond 5825/5550, in case the prices extend beyond these parameters, there may be a sharp spike in volatility as the bulls and bears gear up for the F&O expiry. Traders should initiate fresh trades on lower exposure as capital preservation remains a priority.

Email: lachman.ramchand@gmail.com