Caution alert to traders in indecisive market

The February 15-21 period under review saw increased volatility in the markets. They have gained for six consecutive sessions already and on Wednesday they seemed to be confused whether to close in the positive or negative. The one important fact was that they have hit new lifetime highs. Nifty has been doing it over the last three days in a row and BSE Sensex is yet to do so. The high of 73,427.59 points made on January 16 continues to remain the BSE Sensex high even today. The high today was 73,267.80 points, still short by 140 points or thereabout. Nifty in the meanwhile hit a new high of 22,249.40 points today. At the end of an extremely volatile Wednesday, markets ended down and broke the continuous rally which was on for the last six trading sessions. Markets gained on four sessions of the week and lost on the last session. At the end of the period under review, markets gained 800.26 points or 1.11 per cent to close at 72,623.09 points, while Nifty gained 215 points or 0.98 per cent to close at 22,055.05 points.

Dow Jones gained on two of the four trading sessions and lost on two. Inflation continues to be a bother for the economy and post the latest numbers, hope of a rate cut have temporarily disappeared. Dow Jones gained 291.31 points or 0.76 per cent to close at 38,563.80 points.

Shares of Entero Healthcare Services Ltd, which had issued shares at Rs1,258 listed on Friday (February 16). The discovered price was Rs1,245, a loss of Rs13 or just about one per cent from the issue price. The share closed day one at Rs1,149.50, a loss of Rs108.50 or 8.62 per cent. At the end of the period under review, the share gained some ground to close at Rs1,164.60, a loss of Rs93.40 or 7.42 per cent.

Shares of Vibhor Steel Tubes Ltd, which had issued shares at Rs151, listed at the bourses on Tuesday (February 20). The primary issue from the company was of a very small size with a fresh issue of Rs72 crore in a price band of Rs141-151. Normally such size issues come on the SME exchange but this was on the main board. The issue was oversubscribed 320 times overall and there were 28 lakh applications in all. The issue debuted at Rs421, a gain of Rs270 or 178.80 per cent. The share closed at upper circuit of Rs442, a gain of Rs291 or 192.71 per cent. On Wednesday the share closed at the lower circuit of Rs419.90, a gain of Rs268.90 or 178.07 per cent.

Markets have made a new high on Nifty, while BSE Sensex is still eluding the same. That becomes the first objective in the short term and is therefore the immediate objective. Similarly, with Nifty having made a new high, using the three per cent minimum spillover rule, the level on Nifty to watch out for would be around 22,800 points. This means we have a smooth runway ahead of us and there is a clear path as well. Would this happen without any corrections whatsoever. Certainly not and what we witnessed on Wednesday is exactly that. Markets have seen substantial profit taking from higher levels.

Coming to markets in the February 22-28 period ahead, the domestic markets would remain choppy and volatile. There would be sharp rallies and corrections and it would be the endeavour to see that one does not get caught on the wrong foot. February futures would be expiring on the last day of the month, February 29 and this would ensure that markets become quite volatile on Wednesday when the period expires.

The strategy would be to sell on strong rallies and buy on sharp dips. Markets have their upward targets set with the fresh new highs made on Monday. At the same time, they are also ready for support in case of a correction continuing. This swing will give opportunities to trade. The note of caution would be to stick to large-cap stocks. Trade cautiously as we continue to trade in uncharted waters.

(The author is the founder of Kejriwal Research and Investment Services, an advisory firm)