The market seems to have entered a phase of range-bound trade once again, and

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the indices are being pulled in opposite directions. Wh­ile worsening fundamentals are dragging them downward, at the same time high liquidity in global markets is helping them to recover as soon as they see any correction.

The fourth quarter earnings season has been mixed and the Street has been punishing companies that have not been able to deliver. There have not been many companies that have given any negative surprises.

Inflation numbers have also given the Street a shock as they are not showing any signs of decline in spite of every possible effort by the government as well as the monetary authority.

At times the market gets into “you first” mode, which is basically a symptom when both fund managers and other investors wait for each other to make the first move in either buying or selling equities. If there is 200 points fall in Nifty from present level, then everyone on the Street is likely to turn a seller, citing high crude prices and rising inflation and their impact on bottom lines of companies.

On the other hand, if there is an upward move of 200 points, all caution will be thrown out of the window and we will see rising volumes. To sum it up, the market is at a stage where confusion reigns supreme. For retail investors, the best choice at this stage will be to sit out or invest in companies wh­ose valuations are attractive. They should not bother much about where broader market indices stand.

Next week, the first half could see some volatility as the market is going to react to two important developments; the first being the change of guard at Infosys, and second, the annual money policy review by the Reserve Bank of India. The Street is expecting 25 basis points hike in bank rates. It remains to be seen how RBI vie­ws the situation and whether the market will agree with the central bank’s decision that the worst is over on inflation and interest rate fronts.

Last time when RBI raised policy rates by 25 basis points, the market saw a sharp drop as the view of Street was that the economy needed a harder dose of medicine.

In global markets, the US Federal Reserve’s decision to ma­intain easy liquidity stance and reserve any further quantitative ea­sing for a later stage may help global markets to stay in bullish mode. If you look at the correlation be­tween emerging markets and dev­eloped market, it has come down a bit over the past couple of weeks as the Asian economy struggles under the impact of the weakness in the Japanese economy after the earthquake. The weakness in the US do­llar continued to help metal prices, and this is one reason why metal stocks have been performing well across the world, including India.

Coming to oscillator charts, the short-term indicators are now in sell mode as they have moved southward. But a large number of them are in the positive territory and this has increased the probability that Nifty will once again make an attempt to move upward after a minor correction.

The moving average convergence divergence (MACD) on daily charts is in sell mode, though it is still placed in the positive territory. On weekly charts, this oscillator is in buy mode and it is once again making an attempt to move up­ward into the positive territory.

The 14-day relative strength index (RSI) is in sell mode as this oscillator has moved southward in the equilibrium territory. Even on weekly charts, this oscillator is in sell mode, moving southward once again.

Other short-term indicators are placed in sell mode, but the broad picture on many of these charts shows that Nifty has a higher probability of staying in range-bound mode before it sees any strong directional move.

In Friday’s session, Nifty formed a short-term double bottom and saw intra-day recovery. This has raised the probability of forming a downward sloping trend channel. The market generally doesn’t remain in a channel for long. Wit­hin a few weeks, we are going to see Nifty break out of this channel.

Coming to support and resistance levels for the week, Nifty has attempted to break the downward sloping trendline nine times so far, and every time it has been unsuccessful. This trendline, which is now placed at 5,884, is going to be a resistance for the index in any attempt to move upward.

After the intra-day recovery, it has been able to close above its 200-day moving average. For any strong directional move, the first trading session of the week should see a strong revival. Otherwise bulls could be in trouble and we could see Nifty move below 5,600 very soon.

As far as short-term support levels are concerned, the first support comes at 5,677 after which 5,619 is another minor support, which emerges from its 50-day moving average. Nifty could face problems mainly from Bank Nifty, which has around one-fourth of weightage in Nifty.

For traders it will be worthwhile to reduce the quantum of trading as Nifty nears a strong directional move.

rajivnagpal@mydigitalfc.com