Update for 11th January 2011

   How Long the Free Fall  will Continue ?

How long the free fall will continue ? This is the question faced by investors and traders on the close of the trading as on Monday, 10th January, 2010. Nifty futures have fallen by 313 points  ( 5.15 % ) in the last two days without any meaningful pullback whatsoever. And it's been a long time since the market has seen such  uni-directional moves. The market has also lost continuously for the past five trading days. It seems that the FIIs ( read fund managers ) were just waiting for January to arrive before starting a bout of profit booking, after securing their year end bonuses. It seems that the floodgates of FIIs selling are open now. The free fall of the market observed in the last two days seems to indicate that the low of 5727 recorded by the Nifty futures in November and again reinforced by the December low of 5748, may not hold in the new year.  If these lows do not hold, where are the lower supports ? Let's check the various charts before trying to find an answer.

Nifty Futures - Intra-day Chart   

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