*** Please Note: For my analysis of trade yesterday and my outlook for today all my reference points are with respect to Friday's trade and not Saturday's 90 minutes of trading on a mere Rs 15,500 crore turnover ***

MUMBAI: Shorts, short-covering, longs and shorts again. The Sensex and the Nifty swung 400 and 125 points, respectively, intra-day before the Nifty shuts 40 points off the day's high and the Sensex 125 points off the day's high -- all this on a strong turnover of Rs 1.11 lakh crore and a marginally negative breadth. This sums up the confused nature of the market. 

The long trader is afraid to go long and the short trader is afraid to initiate further short positions, thinking the market may be oversold and that covering could catch a naked position on the wrong foot.  In that context, what we witnessed were amazing forces of push and pull that had the markets eventually close flat with a mild positive bias.

Of course, what helped in trade yesterday was that by the time we closed out, after a long time global markets were stable. Europe was up a per cent and US futures were up half a per cent each. In that backdrop, even though FIIs sucked out $200 million from the cash market, it was well countered by the Domestic Institutional Investors buying $80 mn.  This has been the trend throughout the corrective process where Mutual Funds and Insurance companies have been nibbling away at value-oriented stocks at cheap valuations. 

On the Futures and Options side, it was noteworthy that while the FIIs did sell $65 mn on the Index Futures, they bought $155 mn on the Index Options (mainly Puts).  The cash market selling from them needs to abate, though for this market to find a respectable floor (on Friday they sold $350 mn in cash). So, even though 4700 has held for the moment, there is nothing sacrosanct about the level if the barrage and speed of selling from the FIIs is to continue. 

So, the market on Saturday and for the better part of trade yesterday, did show some strength as reflected by the internals, but the question is the same as yesterday: is this strength on one day's of stable global cues sustainable? It looks tough on current evidence, honestly.  Even so, the 10 point discount of Friday got converted to a 5 point premium. But there is still too much scepticism out there in the market, reflected by the fact that the market did not close out at the day's high. 

The confused market I spoke of in the first paragraph is highlighted by the fact that the value of the Futures transactions increased by Rs 1455 crore and the value of the Options transactions by Rs 1675 crore (a near one-to-one correlation which has not happened in recent memory of the last three or four weeks). 

Some other confused facts: while Stock Futures did overall add 2.8 crore shares in Open Interest (OI), there were a mixture of shorts on stocks like Hindalco and Tata Steel and longs on stocks like Chambal Fertilizers among others.  The Nifty OI Put Call Ratio did not move much, coming down marginally from 1.04 overnight to 1.02 (approaching that 0.85/0.90 mark which has historically confirmed oversold zone and given the markets a bounce, though some would argue we are already oversold).

The market is searching for a direction within a range and is turning violently volatile.  While the Nifty did see a bit of covering in the current series (shedding 0.8 lakh shares in OI) the 5.1 lakh shares (31%) added in OI in the March series was again a mixture of longs in the early part and shorts in the latter half of trade.

It is tough to call the mood of the market. I mean just look at the way the Advance GDP number of 7.2% (which by itself beat expectations and was a solid number) was sold into and the market only bounced back when global markets were supportive, which tells a story: nothing domestic matters now. I am not even sure the Budget would (remember in my article last week I had written the market may have already moved beyond the event). 
Nonetheless, the broad range I had written about in my article yesterday of 4400-4900 on the Nifty till Budget holds and we will get the wild swings within that, depending on global cues. But a more concentrated range I think could be 4600-4900.  There is respectable Put buildup at 4600 and 4700, adding 3.3 and 3.6 lakh shares in OI, respectively, and in the same breadth, it can be said there are a respectable number of shorts opening up each time the market is trying to break above 4800/4900 on the way up.

This morning global cues are reasonably supportive.  Europe closed up a per cent and even though US stocks fluctuated as analyst recommendations lifted Google, Amazon.com and Home Depot and a weaker dollar boosted commodities, offsetting concern over deteriorating European government finances.  Home Depot rallied 3% as Morgan Stanley advised buying the shares, while Google climbed as Bank of America Corp added the company to its "US 1" list of favorite stocks. Alcoa and Exxon Mobil rose 1.5% as oil and metal prices rebounded from last week's slide.

The proof of the pudding, they say, is in its eating. Let's see if this market has the legs to claw its way back into the range of 4800-5000 it was locked in not too long ago.  Today could be the first step in that direction.  It is a tricky market to trade. So remember, as always, trade cautiously and more importantly trade wise!

Disclaimer: This article was written as of 10:15 pm IST last night.