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Only once I attempted to write the Market Outlook over the weekend and I had to face the sheer ignominy of a total volte face by the market. The US$ 1 trillion package was finalized after I completed writing the last issue of our Market Outlook.

Now, this yesterday’s rally has changed a lot of things technically. It has been such a powerful rally that it has taken care of almost the total fall of previous four trading sessions. This is a clear reversal signal seen from a technical point of view. Of course, die-hard skeptics (even we have one amongst us) and member of the cymini sectores (school of hair-splitters) would surely like to take a dim view and indulge in whole host of jabberwocky as to why you should take a dim view of this rally.

The moot point is, as traders, we are not here to judge the merit of the proposals and join the ranks of the naysayers—may be they would be right someday but ignoring this reversal signal we as short term traders are apt to lose our shirts before these bunch of naysayers are proved right.

The one point which deserves mention here is that this is the second time in the last three months when the Nifty came very close to its 200-day moving average yet did not even test it before moving up again. This suggests--speaking from an unbiased point of view--that the Indian bull market has immense strength and we should take a note of it before we start painting a bleak picture.

Another problem is there with the fond belief in some of us who tend to fetishize the intelligence of the option sellers: just check out the history of trading since late December 2007 till date you will find that these people, widely regarded as so called smart money, have been proved wrong so many times that the business of studying this bunch of option data is nothing less than a highly suspect exercise.

Now, where do we go from here? This rally signals the return of a buy on declines market. It is quite possible that there would be some retracement of this big swing up but we do not expect that corrective swing would pull things down so much that the Nifty would breach the significant support zone between 5185 and 5126. This range of 60 points would now pose immense hurdle for the bears; it can be easily breached only if the Greece bailout package runs into rough weather.

Immediately, what we need to observe is the ability of the Nifty to stay above 5201 – 5211 range for it would be quite crucial to clear this hurdle if the index were to carry on its upward march from here. Even those who want to scalp the market by selling short and covering it soon enough would be well advised not to do so if the Nifty maintains itself above 5201 during the day since staying above that level would mean there could be a rally anytime during the day taking it to even higher levels.

Now, if there were to be a good swing up even today it would be severely resisted at 5267. Our understanding is that if the Nifty were to reach such levels during the day there could be some selling pressure on account of profit booking by short term players.

On the downside, before the major support between 5126 and 5120, support is likely to come in at 5185, 5170 and 5153.

Rajat K. Bose