Bulls lack conviction at lower levels

The markets witnessed a mild recovery last week as bear-covering at lower levels, rather than fresh buying, lifted values.

The traded volumes were higher compared to the previous week, which is a routine indicator as the previous week was short of a trading session.

The weekly market breadth was negative as the BSE & NSE combined weekly advance decline ratio was 9005 : 11572. The capitalisation of the breadth was negative on a commensurate basis as the BSE & NSE combined figures were Rs 31184 crore : Rs 44943 crore.

The Nifty lost Rs 31,001 crore in market capitalisation on a week-on-week basis. Sectorally, the banking and technology sectors were market out performers, where as the midcap segment lost ground.

Overseas investors were net buyers to the tune of Rs 1,669.60 crore, which saw the rupee close at the 46.30 vis-a-vis the US dollar (previous week 46.50 levels).

The overseas markets are showing some signs of optimism as the Dow Jones index, the Nasdaq Composite and the FTSE 100 attempt to overcome and stay above their 13-week simple moving averages (SMAs). Should that be possible in the coming week, the cues would be positive from the overseas markets and cause bear-covering in the domestic markets.

The Nikkei index is showing higher relative strength as compared to the Straits Times Index and the Hang Seng Index. Should the Nikkei and Shanghai indices stay buoyant next week, expect the overall sentiments to be cheerful in the domestic markets, causing a bear squeeze closer to the F&O expiry session.

Technically, the Nifty has made a feeble attempt to rally but the bulls have showed a poor buying conviction at lower levels.

The 4975/ 4550 levels advocated as a weekly range on the Nifty spot last week has held as the index gyrated within these parameters.

This week is likely to witness to range of 5025 on advances and 4690 on declines. The weekly bullish pivot will be at the 4875 levels and the weekly bearish pivot is likely at 4835 levels.

Traders may contemplate buying if and only if the Nifty spot manages to close above the 4875 levels with high volumes and open interest expansion.

Being a news /event driven week (Budget and F&O expiry), I expect the volatiliy factor to be high and therefore traders should trade on lighter volumes.