Market Watch: Mercury rising

The temperature is rising. The first signs of global volatility are apparent again. Something's about to give soon. For a market with such high nervous energy, a range bound consolidation is the least likely scenario. Either this volatility is a prelude to a deeper correction or we are about to break out again into a new orbit altogether. The law of averages favours the bears but bulls are in a rich vein of form, with the power of money on their side. This will be a fascinating contest.

The bears will have their eye on China, US and the Reserve Bank of India (RBI) for help. The way the Hang Seng has moved in the last couple of sessions is a bit ominous and does not bode well for the Shanghai market, which reopens on Monday after a five-day break. The China/HK market has become a sentiment leader for the Asian pack. There's important employment data expected from the US and that may decide the course of the Dow in the near term.

Closer home, the continuous gush of dollars is raising fears of a CRR hike from the RBI and that is not outside the realm of possibility. Each of these has the potential of triggering a sharp slide in an overheated market.

Having said that, the market is showing immense resilience. There is still no apparent sign of vertigo even at these lofty levels. In the last two sessions the intra-day cracks have been sharp, but on each occasion the comeback has been equally strong. It's just not falling. Sure, it may still go on to correct but genuine weakness has still not shown up on the screen. Five billion dollars in just 10 days and it's still not run out, the cash. It seems the foreigners are undoing their India underweightage with a vengeance. The next few days will be critical in shaping the next intermediate trend for the market. Flows, global news and maybe even Infosys could hold the key.

(The writer is Executive Editor, CNBC-TV 18)