The sentiment at the beginning of the week pointed towards consolidation with an upward bias as the undertone seemed upbeat and optimistic. However, sharp swings also increased the probability of getting caught at the wrong end

Most traders fell for the short term bear trap as the upward trend and the positive sentiment reversed by the mid week over the anxiety of the pace of economic recovery.

Weak  global market cues caused the Indian benchmarks to break the consolidation range on the downside. Though short covering at lower levels helped the markets recoup part of its losses, the markets continued its downslide once the short covering subsided.

The aggressive expansion plan announcement in the AGM of Reliance Industries in the week gone by too failed to provide any significant support either to its stock price or to the overall markets. Meanwhile, shares of another Ambani sibling registered smart gains until mid week on rumors of a bonus issue before shedding all its gains close to the end of the week as the euphoria receded.

Sugar stocks remained in the limelight as they witnessed  traction with a downward bias in anticipation of a delayed crushing season as farmers demanded a higher cane price. Realty stocks too continued to lose ground as market participants resorted to profit booking at higher levels. Realty seems to be out of favor once again and features amongst the worst performers of the month. 

The last trading day of the week was however the game changer. High beta stocks fell sharply on the last trading day of the week as aggressive traders initiated short positions overseeing the broad market weakness and breakdown of crucial support levels. However, sudden covering of shorts near the 50 day moving average (on the Nifty) and positive global market trend triggered aggressive buying. Resultantly, the benchmarks not only recovered its losses, but also ended the week above the key psychological market levels.

The liquidity that had thus far fuelled the markets may not be enough to drive the market higher as lack of strong buying triggers and profit booking continue to hamper any sharp upswing. Valuations of most leading stocks too do not appear compelling.

Resultantly, the negative global trend may hurt market sentiment across emerging markets, with India being no exception.

Meanwhile, as liquidity remains the key driver, one would do well to remain closely cued on the development of the USD. Most FII money is now coming through the leveraged route (dollar-carry trade). Signs of a strengthening dollar could be taken as rational indicator for market participants to become vigilant and steadily unwind long positions.

Stocks and sector specific action may continue and defensive bets such as FMCG and Pharma may outperform in case the markets correct sharply from this level. Thus, though sectoral churn may continue to remain the key feature of the trading sessions in the next week, realty stocks appear most likely to garner trading interest in anticipation of any pull back from lower levels. 

With the derivative expiry in the week ahead, volatility too will rule the roost.

For now, the markets are trading near the key resistance levels once again. In case of a breakout on the upside, the markets may re-test the recent highs while any sharp correction could find strong support near the 50 day moving average. The markets then are delicately poised, and traders will need to exercise caution while taking up fresh positions, at least till the derivatives expiry is out of the way.