This is going to be an important Monday. After the two failed pullback attempts of last week, sentiment is shaken. If the market closes in the red today, the possibility of a sharp slide cannot be ruled out. Mid-caps are particularly vulnerable as the painful process of retail unwinding may just have begun on Friday. People are scared and a pullback is sorely needed. Not only for sentiment to stabilise somewhat but also to provide an exit for weaker hands.
The bulls will try and engineer a pullback as they know the importance of today's session. They may succeed too if the relentless pressure of cash market selling and Nifty futures shorting does not continue from FIIs. It's also important to remember that FIIs have opened up a significant amount of Nifty shorts in the last 3 sessions, positions which may need to be covered if the market does manage a reasonable pullback. Large FII shorts have generally been losing trades in the last few months but who knows if this time is different. From the domestic institutions, buying should emerge this week, at least in select large cap names which have corrected as much as 15 per cent from their recent peaks. There is cash raised by NFOs and even insurance companies will be there to stand and buy. FII selling is the drag and retail panic, the wildcard. Always difficult to gauge how much more is yet to come.
As we have seen last week, levels are not important at such a time. The screen, which was only reflecting greed these last few months, is flashing fear. Trading is generally tough at such junctures. Contrarian long trades or aggressive shorts could both go horribly wrong. Don't bet your house on the market now, it would be imprudent. Another buying opportunity is coming, just that there is no way of knowing if the floor was hit on Friday, whether it is 5600 or whether we will plunge to 5000 again. Let the market decide that. For us, it's time to shed our green eyeshades, smell the coffee and get back to the fundamentals. There may be bargains in many mid-caps this week. Be brave, but conservative.