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The Nifty has hit a speed breaker, as anticipated: above 5300 levels would have been the test of the bulls while they held their ground but not before getting bruised by the onslaught of supply pressure in this region. A pitched battle is likely to be fought around these levels between the skeptics and the believers.

Internationbal cues, however, are favoring the bulls at this point. The equity markets in Asia are, by and large, trading in the positive territory with moderate gains sans Hong Kong and Singapore, which are marginally down as we write this Market Outlook. The Dow finished last night with 46 points gain with a flat movement during the second half of the trading session; the Nasdaq and the S&P 500 finished their day with nine and seven points rewspectively.

The SGX April Nifty is trading at 5315 down by seven points at the moment on very low volume. Nothing much can be gleaned from its movement though from its movement this morning.

The 5-day moving averages for the Nifty are between 5255 (the Simple one) and 5267 (Exponential). This would be a crucial support area for the index in case of any sell-off that may happen during the day. However, before that 5293 – 5281 would act as initial support range below the coveted 5300-mark.

Talking about market internals, we find they are moderately favoring the bears—first, the Nifty VIX has moved up by 84 basis points to 18.73; secondly, declines have moved up by 118 stocks while advances have come down by 117 stocks, the A/D ratio stands at 0.53; the Nifty PCR has come down marginally to 1.16 from the previous reading of 1.17. Though the enthusiasm on the long side is still greater and the Nifty is above 5300 having posted a new 52-week high, the skeptics did manage to halt its upward march, at least for now.

The Nifty PCR unless it moves above 1.30 would not really sway things decisively in favor of the bulls. In our understanding, the range between 1.00 and 1.30 is a neutral zone with no clear advantage for either the skeptics or the believers. Similarly, the Nifty VIX moving up sharply by 84 basis points indicate that volatility is likely to rise and this would largely favor the bears since an upward swing in the VIX generally signifies downward swing for the market. We need to be a bit cautious on the long side.

We are not saying that the uptrend has been ruptured but it could well be that the bulls need to retrace their steps by a few notches and gather steam to post a decisive breakout above 5360 – 5408 range. Data, as of now, moderately favor the bears though unless the FIIs take a strong positive view and start buying in large quantities once again.

How much downside do we expect now, initially no more than 5266 – 5235 range. This range is likely to provide strong support to the market but if it falls below that then we may see a test of 5210 – 5180 range. However, as of now, it does not seem that this market would fall below 5180 before resuming its upward march.

What is now more probable is a pause here.

Rajat K. Bose