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Monday, Nov 08, 2004

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Diwali week may see a boom

Jayanta Mallick

Historically speaking, the chances of trend reversal have been high in the circumstances.

THE short-term trend for the domestic market has turned up again, thanks largely to the friends of Mr Dick Chaney and Mr George Bush. The crude oil slide greased the upward path for the equities.

Wall Street and Dalal Street never had it so good for weeks.

The BSE Sensex shot up 3.86 per cent and S&P CNX Nifty gained 3.66 per cent last week. The S&P-500 recorded a better performance with a jump of 4.03 per cent.

Foreign institutional investors poured in more money - some Rs 1,749.90 crore net against Rs 984.80 crore in the previous week. The domestic mutual funds were not to be left behind and made a decent net investment of Rs 172.37 crore.

In the reigning euphoria, the market could afford to ignore oil price rise, likely hardening of the interest rate and looming inflationary pressure. The open interest in the derivatives segment also swelled. All these, in turn, indicate that the players are on a risk-taking mode.

The advancing stocks during the week far exceeded the declining ones. But, interestingly, on the last day of the week, the broad-based S&P 500 moved up on a negative breath.

Overall sentiment and trend in flow of liquidity suggest that the market may move upwards this week.

The Sensex may try to reach the psychological mark of 6000 points this week. Street operators would not like to lose an opportunity to send in a powerful signal in a Diwali week.

But, in the process, the market is progressively approaching a high resistance zone dotted by its earlier peaks, scaled during the period between January and April this year. Historically speaking, the chances of trend reversal have been high in these circumstances.

The market pulse suggests that a new set of overseas investors and instinctive domestic investors are apparently overactive. The diehard players will eventually decide the market timing.

The better corporate results in the first half and the blooming "India story" among FIIs are for real. But the third quarter may not be as rosy. Will the market makers start factoring in the negatives shortly to book profits or look beyond? An answer to this vexed question would depend on how long the long-term players are in this market.

Maybe within a fortnight a prognosis about the growth discounting would end yielding a clearer short-term picture.

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