Traders should focus on capital protection this week

The week witnessed a bearish undertone as the initiative passed from the bulls to the bears. The combined exchange weekly advance decline ratio was positive as the figures stood at 13600:8358. The capitalisation of the same on a commensurate basis was negative as the figures stood at Rs34,831 crore: Rs47,684 crore.

The divergence between the market breadth and its capitalisation thereof indicates smart money unloading while the retail segment has been net buyers. That makes the current market scenario akin to treading on thin ice as major long positions are held by weak hands, with limited sustaining power.

The NSE gained Rs85,882 crore in market capitalisation on a w-o-w basis. In terms of sectoral performance, the mid-cap segment rallied strongly, followed by the technology and banking sectors.

The overseas investors were net buyers to the extent of Rs6,749.6 crore and that saw the INR close at the 44.06 levels vis-a-vis the USD (previous week 44.59 levels). The US headline indices saw DJIA scale new calendar highs before closing lower, while the Nasdaq trailed behind.

The UK FTSE 100 recorded a relatively stronger performance on a w-o-w basis, but failed to test the year high. In the Asian region, the Hong Kong markets led the bull brigade followed by China, Singapore and trailed by the Japanese markets which quaked under a fresh earthquake. The overseas cues are largely optimistic, but the domestic market internals are indicating nervousness, which needs to be overcome if the bulls are to return to the ring.

Technically, the domestic markets have shown early signs of a reversal as the Nifty has trended lower from a bearish sloping trendline and the Japanese candle charts are indicating a “tohba” doji (gravestone doji), which indicates weakness in the offing. Unless the bulls manage to take the Nifty spot past the 5950 hurdle, the outlook will remain cautious. The weekly range advocated for the Nifty between the 6025/ 5500 levels have held as the benchmark trended within these levels.

The coming week is likely to witness a range of 6025 on the upside as long as the Nifty stays above the 5900 bullish pivot at the mark.

In case of declines, the Nifty is likely to test a level of 5700 as long as the bears keep the Nifty below the 5850 levels. Should the 5700 too be violated, the fall can be sharper and extend to the 5575-5620 band. Traders should focus on capital protection as their first priority in the coming week.