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Market Watch: Is next week going to be as rough?

The market still remains in a broad trading range, though the lower end of that range is getting stretched, writes Udayan Mukherjee.

business Updated: Nov 23, 2007 23:03 IST
Udayan Mukherjee
Udayan Mukherjee
Hindustan Times

It was a rough week for the market, at least it ended on a positive note. In an expected pullback from oversold territory, the Nifty clawed back to 5,600. A bit more of a pullback would not be surprising either; after all, the fall has been quite sharp. The market still remains in a broad trading range, though the lower end of that range is getting stretched. The upper end of the band remains that psychological barrier of 6,000, which we could not cross even in the second attempt.

There is a danger of drifting into a lower range as the index turned even before it could get to 6,000 this time. The Nifty options activity also indicates that smart traders are not very optimistic about the index crossing 5,800. Thus despite Friday's pullback, traders would wonder if the Nifty is now settling in a lower range of, say, 5,300-5,800. It is a possibility.

What is more important than levels is the global environment and liquidity flows. Since no major development on local fundamentals is expected till January, the market is in the grip of technicals and external news flow. Emerging markets still appear shaky and the yen's level continues to reflect risk aversion. These clouds will have to lift for our market to rediscover its uptrend. Foreign funds sold significant quantities in both the cash and derivatives segments this week and this selling has to abate for the indices to stabilise. To further complicate matters there is an F&O expiry next week.

There are just too many moving parts at this point. With such headwinds, it would be good enough if the market manages to cling on to its trading range and consolidate. Moving to fresh highs now would indeed be surprising, just yet.

Next week is a crucial one. Not only will we get a sense of the global situation and the next leg for emerging market moves, it will also give us a peek into retail sentiment and to what extent it has been damaged by this week's fall. One pullback is never enough to establish whether there has been a turnaround. We need to see more.

First Published: Nov 23, 2007 22:57 IST