While the Nifty and broader market indices last week pointed to a bullish undertone, there were also moments when the scare of correction visited the Street. The coming few sessions could be interesting, considering that some large-cap stocks that had led the Nifty rally saw a sudden correction. On a standalone basis, a 10 per cent correction in stocks sitting on 40 per cent gains is nothing major.

But if these large-cap stocks sees further correction and put the Nifty under pressure, that will have a major negative impact on the breadth of mid-cap stocks.

However, if the mid-caps hold on to the gains even in the corrective phase of large-cap stocks, that would be an indication that mid-caps and small caps are back in action. On the contrary, if they lose strength, the dent in them will be worse than what they suffered in the first quarter of this year. Because the recent buyers would then dump the stocks to cut losses. Not just that, even investors who were holding on to mid-caps in anticipation of a recovery might turn sellers.

Historically, too, the second round of correction is more severe. So the trend over the next couple of weeks will have a long-term impact on the market.

Domestic news flows were mixed last week. The week saw a sharp spike in oil prices and further weakness in the rupee, which touched a new low. But the good news was that the first quarter GDP numbers far exceeded Street expectations, and probably that explains why the Indian market has been rising even when other emerging markets were going down. The 8.2 per cent growth is high even if the base effect is discounted, and that would lead to a gap-up opening on Monday.

In the international markets, a major concern is the dollar strength. The dollar was strong even against developed market currencies and rallied particularly against the currencies of countries where current account deficit is an issue. The biggest reason for India’s current account deficit has been the oil prices; the oil bill is almost double of last year. If oil prices rise further that will pressure the current account deficit and the rupee.

Coming to oscillator charts, most of them are in the buy mode, but are close to giving sell signals. However, since the positive surprise of the GDP number would ensure a gap-up opening on Monday, what is more important is how the market closes the session, as that will determine whether these oscillators get strength or get weaker.

The moving average convergence/divergence (MACD) on the daily charts is in positive territory, with average and trigger lines placed extremely close to each other as they get ready to give a sell signal. The macro formations on these charts indicate that the market might be in for a correction. But that correction could take the shape of broader range-bound moves, perhaps after the Nifty moves up first.

The 12-day rate of charts (ROC) is still moving in sideways direction in positive territory and is still not showing any negative divergence, which goes in favour of the bulls. For the bears, it would mean just a broad range-bound correction in the index.

Coming to resistance levels, 11,850 would be the range where the Nifty could see a profit booking-led correction. The next round of resistance would come only if the Nifty crosses the 12,000-mark, which will, again, be from profit booking. Again, more than the absolute level, the important barometer is what is leading he index up or down. On days the banking sector joins other sectors, the market move would be stronger compared to a situation where the IT sector leads the upward movement.

The first support level for the Nifty comes at 11,508. If this range is breached with strong force and bad market breadth, it may push the index towards the 11,300 level, where its important short-term support giving averages are currently placed. But given the way the Nifty is moving, it is unlikely that the index would come close to its second support-giving average.

rajivnagpal@mydigitalfc.com