Market Summary

A small recovery was followed by another downturn in a very volatile market. The Nifty ended up 0.82 per cent at 4049 points after hitting highs of 4215. The Sensex was up an even more nominal 0.1 per cent at 13,469. The Defty gained 1.5 per cent as the rupee recovered from $43.40 to $42.70.
The FIIs continue to be net sellers while domestic funds are still buying, albeit in small quantities. Volumes remain low and declines slightly outnumbered advances.
Relatively smaller stocks did better than pivotals with the Junior jumping 3.6 per cent and the Midcaps up 1.6 per cent while the BSE 500 gained 1.26 per cent. However, really small stocks suffered from lack of liquidity

Outlook : The market is likely to range-trade between 3900-4200 with fairly high daily volatility. A breakout in either direction would lead to a 100 point move. So a breakout could lead to a swing till either 3800 or 4300. Expect weakness early in the week.

Rationale : The intermediate trend, which turned bearish in early May could now be petering out. The long-term trend is clearly negative.
Daily high-low ranges of 200-plus points are likely. Support at 3850-3900 is strong while there is powerful resistance at 4200-plus. There could be a boost to sentiment if the UPA wins the confidence vote.

Counter-view: The test of support at 3900, which is likely to occur early this week, is crucial. If 3900 holds, the intermediate trend will reverse.
This is a long F&O settlement and technical factors like short-covering will not come into play immediately. For the market to hold at 3900 and then break 4200 on the next bounce will require some genuine value-buying.

Bulls & bears: Q1 results have just started floating in and obviously that has a major impact. IT scrips lost ground this week after Infosys' results and guidance was released. There was massive volatility across the sector and end-Friday, majors such as HCL Tech, Wipro, I-Flex, Polaris, Satyam and TCS all looked bearish.
Much of the recovery came from banks and real estate stocks which had been beaten down severely and saw reversal this week.
The BankNifty gained over 5 per cent with most banks spiking up. In real estate, DLF, Omaxe and Sobha looked most interesting in terms of potential bullishness.
However, Friday saw momentum being lost in both these sectors. Select cement stocks and capital goods and engineering construction outfits also made comebacks.
Non-ferrous metal producers like Nalco, Hindalco and Sterlite saw lots of bull interest. If the SP shores up the UPA successfully, there may also be a bounce for ADAG scrips such as RCom, Reliance Infra, and RNRL. There was scattered interest in scrips such as Cairn, Dabur, Tata Chemicals and Voltas.