>Monthly Market and Sectoral Perspective – Technicals (HDFC SECURITIES)

Markets close at new 09 highs
After taking a breather in Aug 09, the month of Sept 09 saw the bulls taking control. The month however began on a shaky note as the markets were in a corrective mode. The main indices nonetheless soon found support at the 15,356/4,576 levels and from there the bulls were unstoppable.

The bulls gradually lifted the main indices as they made new 2009 highs in the process. The main indices also managed to break out of a trend line that held the highs of June 09 and Aug 09.
While the BSE Sensex closed with a Month-on-Month gain of 9.32%, the Nifty gained 9.05% over the same period.

Volumes were higher M-o-M indicating an increase in market participation. While average daily volumes on BSE during the month of September 2009 rose 5.4% MoM, NSE daily average volumes were higher by 5% -MoM.

Sectorally speaking
The month saw all the sectoral indices ending higher. The top gainers were the BSE Bankex, Metals, Auto and Healthcare indices. The indices that gained the least were the BSE FMCG, Realty and Power indices. Broad market indices under performed marginally. While the BSE 500 ended with M-o-M gains of 8.41%, the BSE Midcap and Small Cap indices ended with M-o-M gains of 7.50% and 8.48% respectively. The NSE Nifty Junior however outperformed the main indices with M-o-M gains of 9.58%.

The month of Sept 09 saw the BSE Bankex finally breaking out of the 7,156-8,671 ranges in which it was trading for the previous three months. The index ended with M-o-M gains of 18.11%. With long-term momentum readings not yet over bought (See the chart on the next page), we remain bullish on this sector and expect the index to test the next major resistances at 10,396 in the next one month. With Cmp at 9930, this implies potential upsides of 4.7%. Stocks that could take the BSE Bankex to these levels are SBI, ICICI Bank, Axis Bank and Kotak Bank.

Medium term market perspective
The month of Sept 09 saw the bulls in control as the main indices gradually moved up and made new 2009 highs in the process. The main indices managed to break out of a trend line that held the highs of June 09 and Aug 09 (see the chart).

The upmove also led to an expansion in trading ranges. While the month of Aug 09 witnessed a High-Low range of 1318/390 points on the Sensex/Nifty, it expanded to 1786/511 points in September 09.

Technically speaking, the trend continues to remain UP on all time frames (Short, Intermediate and Long Term) as the main indices continue to respect the basic tenet of an uptrend, which are higher bottoms and higher tops. The main indices also continue to trade above the 13 day, 13 week and 13 month simple moving averages.

Outlook
With the uptrend intact, there are basically two scenarios that could play out in the next 1-2 months. The first scenario envisages the markets trading in a tight range with the recent 2009 highs of 17,195/5,110 acting as a strong resistance. On the downside, the 16,622-16,494/4,930-4,900 short-term support levels could act as a base.

The second scenario envisages the markets moving up and breaking out of the current 2009 highs of 17,195/5110. A frenzied move could then follow driven by large scale short covering and panic buying by investors who do not want to be left out. This frenzied move could create a bubble top, as it would push the main indices to the previous intermediate tops of 17497-18,895/5170-5370 seen in 2008. A sharp correction could then follow, as there could be aggressive selling by investors stuck in the 2008 bear market.

In case the markets fail to move up from current levels and the current short-term trend reversal levels of 16,622- 16,494/4,930-4,900 fail to hold, look for a quick correction to the 16,255-16,120/4,800-4,786 levels. The 50-day simple moving average and the trend line that has held the highs of June 09 and Aug 09 reside in this area making it a reasonably strong support.

Strategy
Given that the intermediate potential upsides on the main indices are limited to 10-12% from current levels, we recommend trading with a short-term perspective. Traders can enter stocks showing relative strength and making fresh break outs on higher than average volumes. Profits need to be taken when there is a reasonable profit to avoid being trapped when a correction sets in. Trailing stops can also be kept to protect profits.

To see full report: MONTHLY MARKET