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Charts see more pain ahead

Low volumes in pullback rallies, high activity in sell-offs point toward further downside, reports Vyas Mohan.
Hindustan Times | By Vyas Mohan, Mumbai
UPDATED ON MAR 03, 2008 09:13 PM IST

With the Sensex and the Nifty plummeting on Monday to close at technically weak levels, the markets could plumb lower depths in the days ahead, according to technical analysts. The mood is definitely grim.

Indian equity indices lost the most among global peers on Monday after government data showed the trade deficit grew more than thrice in January 2008 from the year-ago level. Amid weak global markets on bleak US economic data released on Friday, the Sensex and the Nifty opened lower and fell further towards end of trade as the government said the trade deficit had widened to $9.36 billion for January 2008 from $2.85 billion in the corresponding period last year.

The benchmark Sensex of the Bombay Stock Exchange and the broader Nifty of the National Stock Exchange ended below their 200-day moving averages–technically, a negative sign. While the Sensex lost 900.84 points, or 5.12 per cent, to end the day at 16,677.88, the Nifty ended lower by 270.5 points, or 5.18 per cent, at 4,953.

"Though both the indices have closed below their 200-day moving averages, what is to be seen is how European markets react to HSBC’s results. Domestic markets will take a cue from that," said Dev Kapadia, chief dealer with Lalkar Securities.

However, despite HSBC reporting 10 per cent rise in profits after the Indian markets closed, the European markets were still trading in the red, raising concerns of a further fall.

Mirroring a heavy build-up in short positions (sell equivalent) in the derivatives markets, Nifty March futures ended at 4,894.20, a 89-point discount from the underlying index. The Sensex mini futures closed at 16,560, 117.88 points lower than the underlying index.

Technical analysts expect the markets to decline further tomorrow. “I am bearish on the markets. The Nifty could come down to the 4,365 level. The correction is not just one of a single wave, but of the entire motive phase. Naturally, this is likely to be most vicious and prolonged,” said Vijay L Bhambwani of

For instance, the implied volatility or the risk-perception of the market is hovering above 8 per cent, way above year-ago levels. Further, ever since the beginning of this correction in mid-January, any pullback has been on low volumes (a weak sign) while declines have generally been on high volumes.

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