The trading day yesterday made up for all the inaction witnessed over the last week. News of terror attack on the Parliament house saw the prices plunge and then recover dramatically as no major damage was perceived. The sensex closed lower by 0.69% after being down by almost 3% at one point. The volumes were very high and the breadth closed very negative.

The plunge in Indian stocks was caused by terrorists. What caused an identical plunge in the NASDAQ yesterday? The answer is simple. The markets here as well as in US are overbought and looking for reason to react. The NASDAQ too had a downward breakout yesterday that seems to signal the end of the intermediate term up trend since 1387.

The question being asked now is has the market bottomed out yesterday? If we are talking about the short term, then perhaps, Yes. We can have the sensex going to 3500 or slightly higher before a major reaction sets in. If we are talking about a bottoming out in the intermediate term, then the answer is No. We need the sensex to fall to a minimum of 3234 before an intermediate term bottom happens. A shallow reaction that continues till 28^th December, 01 is also acceptable as the reaction of the upward move from 2615 to 3500.

To put it simply, yesterday's reaction seems to signal the end of the intermediate term up trend from the low of 2615. We can have the indices behaving in two ways now,

1. The correction can be a sideways channel between 3200 and 3500 that goes on for a 2-8 weeks.
2. A deeper correction can take the sensex to 3161 or 3012.

In case the indices soar up again past 3500, another short spurt will happen before a major reaction sets in.

TODAY'S TRADING DAY

After the high drama yesterday, the markets today can remain in the lower range between 3400 and 3300. Initial weakness can see the sensex taking support at 3360, 3341 or else 3309. A recovery from the 3300 level will confirm the short-term range. Fall past 3300 will take the sensex to 3274 and then 3201.

Resistance for the day will exist at 3409, 3427 and then 3450. Failure to rise above 3400 will confirm the downward bias in the short term.

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