Still no direction. The market continues to swing around wildly within a broad 1,000-point range of 19,000 and 20,000. The mid-cap end of the market is witnessing violent churn as well, with stocks either flying up 10-20 per cent or collapsing the same amount in a single session. The market is edgy but trading patterns are inconclusive. Trading volumes, therefore, have dipped as participants get thrown out by the wild swings or trade lower volumes to minimise losses. It is tough for directional traders: recent history would lay the odds on a breakout to new highs again, yet some of the recent headwinds may be indicating a southward direction. Both the bulls and bears have something going for them; it is an even contest for the moment.
Commodities have done a great job, so far, of offsetting the losses of the services sectors. Telecom, led by Bharti Airtel, has been drifting down; even popular banks like ICICI Bank have corrected; and information technology collapsed again on Wednesday. Cognizant's downgrade overnight gave investors yet another reason to slam the techs. Thankfully, Reliance Industries and some of the metal blue chips like Sterlite saved the day with strong performances. Outside the index some of the excesses are cooling off a bit. Reliance Natural Resources has corrected and many power stocks have retraced somewhat, which is good as all these stocks were getting well ahead of fundamentals. Stock futures have, selectively, lost some open interest, indicating an exit for some of the weaker hands which have been stung by this volatility.
But these are all short-term gyrations. I do not think the direction of the next 10 per cent move for the market is clear. A 10 per cent index rise would take the Sensex to 21,500, a 10 per cent fall to 17,500. Which is the path of least resistance? Tough call. Easier to say it will consolidate in a range but the market seldom does that for very long. More importantly, what happens to the popular non-index large- and mid-caps is critical. Since flows are drying up, global equity markets will need to hold up till the end of the year for us to hold a positive trend.