Update for 10th January 2011

      The Strong Stocks too Join the Bandwagon ?

It was common knowledge that banks and other interest sensitives were weak and the market was being held up by some strong stocks from a few sectors like, IT, FMCG, Pharma and some selected commodity stocks. Therefore, the best case scenario for the Indian stock market in the short term was a period of sideways to positive trading, in which period, the growing fundamentals may justify the extant high valuations of the pivotals. However, no one could have anticipated the kind of the capitulation seen on last Friday in the Indian stock market. By hindsight, we can attribute the gains achieved in late December, which also came with very low volumes, to those fund managers who wanted to ensure their fat year end bonuses and nothing more. Now, the Indian stock markets are certainly under performing most other stock markets because of the internal problems faced by the economy and due to the relatively high historical valuations. I had written in the very first post of this year that "the Indian stock markets are still quoting at relatively higher historical  valuation levels due to the perceived growth potential and ....the fundamentals of Indian stock markets may be affected by the tight liquidity, rising inflation and interest rates, political instabilities, the ever decreasing standards of governance both at the corporate and political spheres etc, albeit in phases." But while writing that post, I never expected that the market may encounter the roadblocks within such a short time !

Friday's Market Action :  Nifty futures opened slightly lower at 6065 and just managed to touch the previous day's last traded price. Thereafter, the contract started to drift slowly towards the lower supports or reference points. As usual,  the bank stocks sold off initially. Nifty futures managed to stay above the 6030 level in the initial stages. However, the break of this minor support saw the futures testing the next minor support at 6000 and staying between 6000 and 6030 for the next two hours or so. Once the 6000 mark was broken, the decline accelerated and Nifty futures reached a low of 5891 in the last half an hour of trading. The important point noted was that the contract never got any meaningful support at the 5940 level. The contract closed at 5896 for the week.

Nifty Futures - Intra-day Chart   

Update for 7th January 2011

      Market Loses Further Ground, But What Now ? 

As suspected and also indicated in most posts of this year, the banking sector and the interest sensitives  like the autos and capital goods stocks are becoming road blocks for the new year rally. Nifty future opened slightly higher at 6130 on Thursday. But the contract sold off immediately at the open, to reach the reference level of 6090. It spent some time above the 6090 level but, on the back of further losses in the banks, it broke the minor support at the 6080 to 6090 levels. However, the fall seemed to cushioned on the back of some strength seen in the market heavy weights Reliance, Infosys, TCS etc. We had indicated  in the previous post that if the major stocks continue to move in diverging directions, Nifty futures may trade sideways also. Nifty futures recorded a low of 6046 in a slow probing move in a market of diverging stocks but recovered to close at 6070 for the day.  

Nifty Futures - Intra-day Chart