Key indices and stock prices bounced back last week on renewed buying by funds and retail investors on optimism that 2009 would be a better year economically. Technically, a correction normally extends to as much as 62% of the previous rally and stretches for up to 27 months.
Because the correction in terms of a retracement has come rather fast, there are hopes that there could be an early end to the gruesome bear run on the markets, leading to optimism about prospects for the new year.
The measures announced as part of the stimulus package are basic necessities to lift economic growth. But larger economic concerns of demand and supply still remain. As far as the impact of the stimulus package on stocks is concerned, it will boost the market in the short term. However, investors would look for cues from the third quarter financial results of companies that would start announcing them soon.
A lot of bad news about corporate earnings has already been discounted and a moderately poor performance by companies would not dent investor sentiment. However, any sharp fall in profits and projections for coming quarters could do considerable damage.
The earnings season will begin next week in a big way when companies such as Infosys Technologies Ltd, ITC Ltd, Reliance Industries Ltd, ICICI Bank Ltd, Tata Consultancy Services Ltd, HCL Technologies Ltd, Reliance Natural Resources Ltd, HDFC Bank Ltd and Reliance Energy Ventures Ltd will announce their results.
Next week would largely decide the trend on Indian bourses. Though early leads would be available this week—also with some important corporate numbers—the reaction to initial financial results will be muted.
Globally, sentiment is likely to remain flat with a positive bias in the absence of any major market-moving news lined up during the next week. However, there would be optimism ahead of Barack Obama taking over as the next US President.
The economic calendar of the US is busy this week with some important data releases scheduled, apart from a host of financial numbers. So, it would be better to take into consideration the global factors as well before making an investment or a trading call.
Technically, the market is poised for further gains in the initial part of the week. The undertone is reasonably strong and is likely to push the Bombay Stock Exchange’s Sensex beyond its recent high of 10,186 points shortly. For a rising Sensex, the first resistance would come at 10,072 points, which will only be a moderate level. This level may not offer any significant hurdle to a rising Sensex and the index may overcome this level easily (probability 95%).
However, the next resistance would come at 10,186 points, and that would be an important level. There is a 90% chance that the Sensex would cross this level despite this being a relatively stronger resistance level.