Market today will reveal nature of pullback: Udayan

We have seen a pullback in global markets in the last couple of days, but today things are quieter. There is stabilisation in the global markets, but whether this is a pullback or a temporary hiatus from the corrective phase over the last few sessions will be seen in the next couple of trading sessions, says Udayan Mukherjee, Managing Editor, CNBC-TV18. 

A pullback is expected in an oversold market, but the Nifty’s 100 point pullback came as a surprise. Like I said, it was expected that a market which seems spent on the way down will give you a pullback. Pullbacks are difficult to map, and the ferocity of them sometimes leaves you quite surprised. Today, the market will probably open flat.  As long as global cues are stabile, we should not violate recent lows. If global markets extend themselves, the Nifty could touch 5,900. The dollar is a bit of a problem this morning. It is getting back to 82.50, but we have had a good pullback. Some markets, of course, are doing better than the others. Two markets, US and Japan, have been on a trajectory of their own. So, all markets have not come back. But generally, this has been a period of some stabilisation in the global mood. Just a few days back, there was a lot of apprehension post the sequester and the Chinese real estate curbs that maybe the world is going into bit of a tizzy. That has not happened, so in the last couple of days we have seen stabilisation in sentiment globally, there is no question about that.  The fact that the euro is very precariously poised around that 1.3 mark and the dollar is around 82.50 is not very comforting. So I don’t think it is fair to say we are out of the woods yet. But at least there has been some calm over the last couple of days, not a complete risk off which seemed likely just three-four sessions back.  I think the trillion dollar question is what happens what happens to flows as we go deeper into March. We were always talking about 5800-5850 as the first marker of this pullback, and if global markets hold up it could extend itself to about 5900. Beyond that, we will have to see because if this is indeed just a pullback of the big correction that began from 6100 took us all the way down to 5650, then somewhere in this 5850-5900 zone we should be running into resistance again.  However, all of this has the classic signs of a pullback right now - the kind of stocks that have gone up, the quantum of gains, the amount of short covering that we have seen over the last couple of days. This looks like a bounce from oversold ground. Is there more juice to it, can it extend a bit longer than we think possible at this point of time?  Sure, markets can do anything, but we need to see the evidence of the next couple of sessions, see what the weekly close is like, and whether it is holding out hope for next week to extend this pullback to 5900 and beyond.  However, we take it one step at a time. The first step of that pullback is already behind us. Today would be a confirmation of whether it is just a two-three days kind of pullback or something more substantial than that. The Nifty put on about 100-120 points from the recent lows. Maybe it’s good for a bit more. We will see that today. The SGX is pointing a bit lower, but it has not been a very reliable indicator of how markets opened up in recent days.  So, we probably need to get to see the first resistance around the 5830-5850 hump - that is a small one to cross. If that is taken out, the market could extend its move up to 5900. That I think is a point which people should want to watch carefully because I imagine a lot of traders were expecting this pullback, at least the professional traders were expecting it. They will probably trade it till 5850 and then take out some of their positions on the long side, then look to engage some fresh shorts at every level above that. So, both from a supply perspective as also some fresh shorts being pressed, you are probably getting into another 30-50 points in area where there could be some resistance for this market. So, the first flush of the pullback is over. Of course, global markets, if the surprise over the next few days and the ferocity with which the US market pulled back and went to a new high tells you that something else is going on out there. So if that market continues to be strong and flows start picking up slowly as they have over the last couple of days in the cash market, it is possible that the market holds a more respectable range. Do remember that January and February have been very bad series for the market? So maybe after such a bad spell, the pullback is more than just a two-day affair and can stretch out for a couple of weeks too. So for now, just go with the belief that this is a pullback in an otherwise very weak spell for the market for seven-eight weeks. At the first sign of any kind of vulnerability that creeps in the global markets, you probably get a sense that that pullback is coming to an end and the market might resume its downside. So, we are not out of the woods but there might be a bit more to go on the way up.