The Sensex lost 120 points on Monday, and stocks like Infosys, Satyam Comp, ITC, HLL, MTNL, SBI, L&T and Ranbaxy contributed. Reliance was the only counter which provided marginal help. The stock was up more than one per cent.

The trading volume on the BSE dropped further, and stood at Rs 14 billion - just 35 per cent of an average trading volume of Rs 40 billion. This indicates a major damage to market depth, and can no way help the sentiment especially when undertone is bearish.

A sharp drop in market depth also reduce the importance of technical analysis to some extent, and volatility is continue to be higher.

Technically speaking, the index has broken its important base of 3800 points, which is a negative signal for its medium-term health. The next support for the index is at around 3500 points. The level of 4100 points is an immediate resistance.

While the market depth has dropped drastically on account of Sebi's restriction, the sentiment is unlikely to show any improvement, and unless that happens, one should avoid any long positions. The contrarian may argue that one should buy when there is blood on the street. But the need of the hour is to protect the capital, and certainly the time is not for being brave and going against the tide, especially for small players.

One needs to stay away from long positions till the consolidation process is over. And that would require some time. Even if one wants to be contrarian, the stop losses should be very tight.

Although there has been a sharp fall in the last five trading sessions, the speed at which the tech stocks are falling, the bottoms still appear to be away from the current levels. In the best scenario, a corrective move may occur.

The weakness in tech stocks also had its impact on old economy counters, and very few counters have managed to retain themselves above their important supports.

Reliance is one such counter. The stock is yet to break its base of Rs 396, and whenever rally occurs, this counter may overperform the market. SBI and HLL have also not shown a major fall. While these three counters have done better than others, purchases should be done cautiously.