Markets are showing signs of recovery

The last week witnessed a revival of sentiments in the latter half as the bulls returned to the fray.

The mid-cap and banking sectors led the rally from the front as short covering cum fresh buying was evident here in abundance. The headline indices ended nearly 2% higher on a week-on-week basis, even as the market internals turned positive. The combined exchange weekly advance-decline ratio was 9140:6785 and the capitalisation of the same on a commensurate basis was Rs 48,500 crore:Rs 39,673 crore.

The NSE gained Rs 1,26,758 crore in market capitalisation over the previous week.
The FII investments were positive during the week with Rs 716.2 crore of inflows as the markets regained their feet. The rupee ended the week at 46.81 vis-a-vis the US dollar (previous week 46.95), showing buoyancy in sentiments in the FII camp.

The overseas markets were optimistic too as the US indices gained approximately 3%, the UK FTSE 100 rose about 1.5% and the Shanghai Composite gained almost 7%. Nikkei 225 ended in negative territory and dragged the Asian basket down. With the Dow Jones Industrial Average closing above the psychological threshold of 10000 levels, the possibility of fresh rallies is higher as I had advocated an inverse head and shoulder pattern on the Dow Jones with a probable target of 10500 by March 2010.

Technically, the domestic markets are showing signs of recovery that will need ample follow-up buying for a sustained upthrust. The leadership is returning in the index front-line/heavy weights and that makes the upmove a fairly broad-based one. The weekly range advocated last week at 5250-4475 levels has held as the index gyrated within these parameters. This week will witness a range of 5020 on advances and 4600 on declines. Only if 4600 is violated forcefully, will the probability of 4350-4400 arise. The weekly bullish pivot will be the 4725 level, above which the bulls must maintain the Nifty closing if the upmove is to gain momentum.

On the flip side, the bearish pivot will be at the 4650 level. If the Nifty spot starts closing below 4600 consistently, lighten up on trading long positions. Any fresh purchases must be on light exposure only.