Need to pause, correct & regain momentum

Markets were on a roll in the period of August 26-September 1 and the gains witnessed on Monday and Tuesday were indeed huge. It appeared that they would not stop, but all good things have to come to an end, and so did this rally. Today what we saw was a typical correction with markets gaining ground at the beginning and then correcting.

The net change during the period was still significant with BSE Sensex closing at 57,338.21 points, a gain of 1,394 points, or 2.43 per cent. Nifty gained 441.60 points or 2.59 per cent to close at 17,076.25 points.

In the process of Wednesday's movement, BSE Sensex and Nifty made new intraday highs of 57,918.75 points and 17,225.75 points respectively. It also made closing highs as of 31st August of 57552.39 points on BSE Sensex and 17,132.20 points on Nifty.

It is significant to note the intraday range for Wednesday as well. This was between 57,918.75 and 57,263.90 points, a range of 654 points. Similarly, on Nifty it was 17,225.75 – 17,055.05 points, a range of 170 points.

Another point to be noted was that the Midcap and Smallcap indices were positive for the day. Further, the number of shares advancing and declining on NSE was not poor as the market closed with there being 820 advances and 964 declines. This gives us a possibility of the breadth increasing on the negative side if markets drift down on Thursday.

August futures, which expired on the August 26, saw the series gain 858.45 points or 5.44 per cent. This was a good gain for the bulls. In the period under review, we had three days of gains, one day of loss and one day of sideways movement.

In economic news, GST collections at the gross level for the month of August were at Rs 1.12 lac crs against Rs 1.16 lakh crore in the previous month.

In primary market news, two issues have opened for subscription on the September 1 and would close on Friday (September 3). They are from Vijaya Diagnostic Limited which is raising from an offer for sale roughly Rs1,895 cr in a price band of Rs522-531. The issue at end of the first day was subscribed 0.27 times, with retail portion receiving 1.73 lac applications.

The second issue is from Ami Organics which consists of a fresh issue for Rs 200 crs and an offer for sale of 60.6 lac shares in a price band of Rs 603-610. The issue at end of the first day was subscribed 1.90 times. The retail portion was subscribed 2.83 times and 3.35 lac applications were received. If one had to choose between either of the two issues, the choice is obvious.

Coming to the markets in the period of September 2-8, they seem to be moving in treacherous and unchartered waters. While the momentum has been with the markets, there is a feeling that we have done enough for the time being and need to pause, correct and then regain energy and momentum. Any movement from here on without correction would be dangerous for the health of the market.

While technical analysts are hazarding guesses of how much and how long, fact is that all initial and original targets have been achieved. Any targets now being dished out are in retrospect or hindsight or simply because the ones promised have been reached.

Its time to move to cash and sit out any further movement which may take place in the upper direction. Nothing significant would be lost if the last leg which will be both-sided and swift and merciless were to be given a miss.

Build on cash and prepare for the day when stocks are available significantly lower. That day is certainly not far and, in all probability, would be available in the coming period of September 2-8.

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