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Next few weeks could be good for markets

Next few weeks could be good for markets
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First Published: Mon, Jan 19 2009. 08 45 AM IST

Updated: Mon, Jan 19 2009. 08 45 AM IST
The world is waiting for the swearing in of Barack Obama, the 44th president of the US, on 20 January, and for some ground-breaking measures to lift the US economy out of recession.
The picture is not pretty in the US as far as corporate earnings go. The earnings season has indeed been disappointing so far and there are fears that the scene can get worse.
The Indian scenario, however, is quite different. There have been no nasty surprises in the earnings season so far and in many cases, in fact, the results have been better than market expectations. However, weak global prospects and persistent selling by foreign funds have put a lid on gains. A few good corporate earnings could swing the mood in favour of the bulls in the short term. This is reflected in technical charts too.
Initial technical indications suggest the beginning of a new bull run, leading to a huge rally on the bourses. It’s too early to confirm this but I am reasonably convinced that despite all odds, a positive trend is now likely to emerge and the next few weeks could be good for stock markets.
The biggest impediment to the market now is not the weakening economy but the fear about the future, and this is causing great damage. In the US, this fear seems to be justified as earnings have fallen at least 20% from the year before, but the Indian scenario is not that bad despite the slowdown.
Better days ahead? The BSE building in Mumbai.Trading is likely to resume on an optimistic note this week as there would not be too many negative cues ahead of the swearing-in of the new US president on Tuesday. Ashesh Shah/Mint
Trading is likely to resume on an optimistic note this week as there would not be too many negative cues ahead of the swearing in of the new
US president on Tuesday. Besides, the US markets will be closed on Monday for the Martin Luther King Jr. Day holiday. So, there could be broad-based gains in the initial part of the week even though some profit booking could emerge later.
The Bombay Stock Exchange’s benchmark index, the Sensex, is expected to move up and may test its first resistance at 9,414 points—a moderate but important resistance level. This level is moderate because it may not offer much resistance to a rising Sensex and there is an 85% probability that the index would breach this level. But it is a critical level as crossing it would signal a strengthening of the rally and ensure further gains on the bourses.
The next level of resistance would come up at 9,569 points, again a moderate resistance level. There could be further gains and the next crucial resistance level for the Sensex would come up at 9,808 points. This would be an important level as there could be some profit booking around this level.
Despite being crucial, this level technically will not be the terminating point for the uptrend. And if this level is broken, the Sensex will face the next resistance at 10,170 points. If the index closes above this level with high volumes, this would signal that the recent new high of 10,473.78 would be tested soon.
On its way down, the Sensex is likely to test its first support at 9,167 points—a crucial support level, as its breach would weaken the positive momentum. There would be a very critical support level at 8,946 points, which is the recent low for the Sensex, and a close below this level would be bearish and would be a confirmed signal of a further fall which would push the Sensex to 8,559 points, again a very crucial support level. A close below this level would be very bearish and may signal new lows in coming days.
The S&P CNX Nifty, on its way upward, is likely to test its first resistance at 2,854 points—a moderate but crucial resistance level. A close above this level would signal gains. However, the next resistance level would come very shortly at 2,905 points. This will be an important level to watch as a comfortable close above this level would mean strengthening of the uptrend, which would push the Nifty close to 3,000 points as the next resistance lies at 2,996 points. This too would be a moderate resistance level and if the Nifty pierces this, the next resistance level will come at 3,140 points.
On its way down, the Nifty would test its first and an important support level at 2,789 points. However, a close below this level would signal quite a bearish trend and the Nifty might witness a steady fall, as the next support will come at 2,710 points. A close below this level would mean end of positive sentiments as it could mean testing new short-term low levels.
Among individual stocks, this week Maruti Suzuki India Ltd, Reliance Capital Ltd and Suzlon Energy Ltd look good on the charts. Maruti Suzuki at its last close of Rs589.65 has a target of Rs606 and a stop-loss of Rs564. Reliance Capital at its last close of Rs428.50 has a target of Rs444 and a stop- loss of Rs391. Suzlon at its last close of Rs50.50 has a target of Rs55 and a stop-loss of Rs44.
From the previous week’s recommendations, Wipro Ltd touched a high of Rs253.85 but missed its target of Rs264. Bharti Airtel Ltd and Oil and Natural Gas Corp. Ltd (ONGC) triggered their stop-loss.
Vipul Verma is a New Delhi-based independent investment adviser. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Mon, Jan 19 2009. 08 45 AM IST