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Mr. Rajat K Bose appears in ETNOW TV programmes. Normal Timings between 11am to 12noon. Mon to Fri.
 

Indices in our market are likely to open gap up both international cues and domestic events might give a fillip to the bulls to open the trading session quite strong. While sustaining at those higher levels may be fraught with difficulty, possibility has it that the bulls might succeed in holding the levels above 5350 for the Nifty. This is more due to the fact that short term cycles and the gush of momentum tend to indicate that there is a probability of a top formation again on either tomorrow or day after—Feb 07 or Feb 08.

What we need to observe is that if there are any indications of sector rotation and shifting of focus to midcaps or small caps—if that were to start happening in any significant manner and you find that generally weak counters with diminished fundamental strength are rallying in the market while the leaders among the large caps show slowing momentum and a bit tiredness then that would be another confirmatory indication for an impending short term top.

The fact that we are already in the first phase of the bull market does not need to be belabored much, and the threat of the Nifty going below 4900 and staying there appears to be much less notwithstanding what was being suggested by rank skeptics every time Europe sneezes.

This morning Asian markets are doing well on the back of the publication of fresh data to suggest that US economy is improving; on last Friday, the Dow closed 157 points (1.21%) higher at 12862, the Nasdaq surged by 49 points (1.61%) and the S&P 500 went up 19 points (1.46%). Today, Australia and Japan are up by nearly 1% while Hong Kong shows a gain of 0.6% and China just 0.17%. Our man the SGX Nifty is now trading up by 50 points at 5389 as we write this Market Outlook. In all likelihood, we are bracing for an opening higher than 5350 for the Nifty.

The levels to watch out for above the index level of 5335, a key resistance level, would be the range between 5384 and 5400 for the Nifty. This range is likely to offer good amount of supplies. If it is taken out with lot of buying support then 5434 through 5450 would be the next significant resistance zone.

On the downside, after opening higher than or around the level of 5350, we need to closely monitor the level of 5335. If this is also breached then 5305 through 5279 would be the area of support. This would now be a key support range once the Nifty tests 5350 or there about on the upside. Below this level of 5279, the range between 5254 and 5245 would be another good support area.

One worrying factor is the persistent rise in the volatility index—it has moved up again 40 basis points (1.69%) to 24.09—this does not augur well for the bulls for this index climbing close to or above the 25-mark would mean considerable selling pressure at higher levels around 5450 might be in the offing and we should not be surprised if we see a large fall in a session in the Nifty (and the Sensex) after posting a top in the next few trading sessions.

We ought to be a bit more cautious at this juncture before committing ourselves in any big way on the long side. However, till such time the bulls fall below 5215, as of now, there is no major threat to the uptrend even in the short term.

Note: Either on the long side or on the short side if at any moment a counter is not moving beyond an initial or interim target to the final target book profits. Once initial target is crossed, you can use that as your trailing stop-loss level.

Rajat K. Bose