Software stocks were once again the favourite of the market. But more importantly, the undertone was firmly bullish. This is reflected in the fact that many scrips, even in the old economy sector, which had gained in the last 15 days, have managed to retain their gains.

If the markets were weak, they could have become vulnerable. But that did not happen.

In fact, it was a week with nervous anticipation. No one knew which way the market will break out. The real danger was in case it decided to break down southwards. For then, there would have been losses in a number of counters, which were sitting perched after a spirited upmove very recently.

But, the market appears to have taken its que from the Nasdaq index. Since that index has not been weakening, local operators were still hopeful. In fact, they become more daring as they took positions in Infosys Technologies. Apart from this late development, clearly the market is lost for drivers. The only driver that can come besides the Nasdaq movement is the next quarter results for the software companies. It is on this hope that there has been a good improvement in quite a number of counters, including Satyam Computers.

Also, the fact that the software counters have moved down steeply almost by 70 per cent from their peaks made it easy for fund managers to be bold. But that is only part of the story.

The real story in software stocks is that they have been momentum stocks. The question is, will the momentum return?

Given that the Indian markets have got habituated to mimic Nasdaq's movement, for want of any better and more proximate drivers, the momentum possibility is capable of being examined in some detail.

The Nasdaq composite index has acquired more composure of late. It is not threatening to move down. At the same time, the small upthrust cannot be interpreted to be the beginning of another momentum drive upwards. At least, it is too early to say that.

But why not look at the underlying factors, which would set up a favourable ground for the upward mometum to start firing, if at all. That is a better way to understand and possibly predict the market rather than waiting and hoping for the technicals to give you an answer.

The problem with technicals is that a breakout happens, when it actually does. Until then, all you have is a build-up. And a build-up is just that, like what happened at BSE this week. It is based on hopes and taking of positions, speculatively or tentatively. So, let us revert the fundamentals that could push or not push the technicals for a break out of momentum. Last week, you had the unemployment figures coming out in the US, which indicated that the economy is slowing down. This time around, you have the retail sales figures. Retail sales are slowing.

This is another proof that the economy is slowing down. With this additional picture now, it is fair to expect that the Fed will not go through with another round of interest hike, that was originally expected around June 28.

Optimists are hoping that the hike will not come through in July and August as well. Nevertheless, Greenspan could still be issuing a warning by end of June.

But the real cue will be the likely follow-through of the beginning of the slow down in retail sales. A slow down is fine and welcome. It will give the economy the needed breath from the non-stop growth, with its attendant risk of inflation and blow out.

But should the slowdown in consumer spending result in loss of consumer confidence that would be a different matter altogether. Now, there is no way you can predict, which way things will move in the next 2-3 months.

At best you can put it down to a period where you need to be on the look out. Now, that scenario is not exactly the right setting for the firing of a momentum trading, as we witnessed last year. And then, there is one more requirement for momentum trading. And that is, you buy the stock at today's price, hoping that some one else will automatically be willing to buy it at even a higher price tomorrow.

Now I do not see how that can happen, with levels of awareness having risen after the recent meltdown. People will keep watching the economy to see if it is moving towards a soft landing or a hard landing.

If the consumer confidence is lost, that would set in motion a different kind of driver altogether. Less consumer spending will lead to curtailing of both the top and bottom line growth. And that could reverse the stock market sentiment.

Given this scenario, it would be natural to expect marketmen to be more cautious and careful. The setting is just not right for launching into a momentum spree.

And then, you have this important factor, liquidity. Liquidity drives market and takes it beyond normal valuation processes. The question now arises as to what would be the market players stance, if they are flush with funds.

Funds need to be deployed somewhere. And given that prices have moved down considerably, it would indeed be tempting to put the money here rather than in bonds. The gains can be certainly higher than bonds, though that may not be the old 50 per cent gain in just weeks.

Should that result in triggering the momentum? It could but, I doubt if money will continue to pour in at higher levels. Buoyancy, yes. Sprialling, No.

I believe caution and watch will be the new keywords. So, finally, yes, the markets can move up, but momentum trading into a spiral? I doubt it.