Will The Market Sustain ?

Markets can stabilise
only if FIIs turn net buyers

Carnage and blood bath was witnessed on Dalal Street as markets collapsed on the back of weak global cues and lack of liquidity in the system. Traders and speculators were seen unwinding their positions in frontline index heavyweights and mid-cap and small cap stocks. Incidentally, FIIs remained net sellers in the cash segment but were net buyers in the derivatives segment. Moreover, domestic institutional investors were net buyers. The volumes recorded have been lower while the breadth of the market has remained weak during the course of the week.
Global cues have remained negative with weak US economic data and fears of the US reeling under a recession. However, the U.S. Federal Reserve’s decision to reduce interest rates by 75 bps has helped in improving the global sentiment. Crude oil remained range bound on news of the US economic slowdown. Lack of liquidity continued to be the bane of the markets. With IPOs sucking out liquidity and FIIs remaining net sellers, the marketmen faced a tough time paying for the margins, which triggered a sell-off on the domestic bourses.
The earnings season continued to meet market expectations. However, it has taken a back seat due to the continuing liquidity pressure, which is likely to improve from the first week of next month, as IPO refunds begin. Now it is important that FIIs also turn net buyers for the markets to stabilise and a sustainable rally to unfold. In the meanwhile, the markets would continue to take cues from global markets, crude prices and the monetary policy to be announced next week. Stock specific action will be witnessed amidst occasional bouts of volatility and choppiness.
Technically, the Sensex has support at the 16,545 and 15,699 levels. On the upside, if the Sensex can sustain above 17,475, it is likely to test the 18,526 and 18,715 levels. The 4482 is an important support level for the Nifty. On the upside, if the Nifty manages to sustain above 5156, it is likely to test the 5519 and 5575 levels.

Broad Market Review
None of the sectors or indices have shown significant recovery even though the Sensex made a significant pull-back. BSE Bankex has pull-back to almost 0.618 levels as the other indices struggled to pull back to 0.500 retracement levels. The strength has emerged on the BSE Bankex and the Bank Nifty. Both these indices need to maintain at a higher range and not collapse from hereon. Stock wise strength in the banking sector has been witnessed. It now depends on how banking stocks stand collectively to trigger the market further towards the highs.
In terms of weekly relative strength, which is based on the strength for the last 13 weeks, the strongest at this point are the Banking indices, followed by BSE Realty and BSE Oil& Gas. These indices have gathered strength because on the slide their fall was less sharp on relation to the overall Nifty/Sensex fall. On a recovery, banking, realty and oil & gas recovered sharply to support the Sensex/Nifty on the pull-back.

Strategy for the week
Overall strategy would be to book profit or exit long positions in loss on rally to the pull-back level of 18823-19569-20275.