The year 2008 began with concerns about overheating economies and ended in global recession as the US financial turmoil spread. Bear Stearns Companies Inc. was sold to JPMorgan Chase and Co., Merrill Lynch and Co. to Bank of America Corp., American International Group Inc. was taken over by the US Federal Reserve and Washington Mutual Inc. and Lehman Brothers collapsed in the worst financial crisis since the Great Depression.
India escaped the brunt, but a 54% decline in the Sensex index during the year ended a five-year rally, shaking the economy and leaving investors in shock. At the end of the year there were few clues to what lies in store. As far as stock markets are concerned, 2009 may be better than 2008, and the New Year could bring some hopes of global economic revival, although almost every economist has warned of worse to come. India’s economy is starting to reflect underlying weakness, with advance tax collections in the September-December quarter signalling gloom for corporate performance. The market has reconciled itself to a poor show by Indian companies in the current quarter, financial results for which will start coming out in the second week of January. Still, no one knows for sure how bad this quarter has been for corporate performance. The way factories were suspending production during the quarter, the chances are that the financial numbers may be nothing to cheer. Investors are awaiting the second economic stimulus package, which is due to be announced shortly, and there is also speculation about another round of interest rate cuts. This could though push markets up, but the momentum may fizzle out soon because of jitters ahead of Q3 numbers. Globally, too, not much is expected before the Barack Obama administration takes over in the US in January.
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Technically, too, there is not much to cheer. Since the Sensex has broken past some key support levels, the undertone is gradually getting weaker. Currently, the Sensex is at a very crucial support level of 9,310 points. This level, being very near the current 9,328.92 points, needs to be monitored very closely. If the Sensex breaks below this level and bounces back then the sanctity of this level would remain. However any confirmatory drop below this level, which could be due to sharply higher volumes or highly negative breadth of the market, would trigger more declines as the next support for the Sensex would slip to 8,910 points. This too would be an important support level and a bounce from here would result in a relief rally. But a drop below this level could mean the next critical support coming at 8,330 points. Logically, given the current circumstances, this would be the bottom for a falling market.
On its way up, the first resistance for the Sensex is likely to come up at 9,634 points, which would be immediately followed by the next resistance level at 9,706 points. This resistance band would be very crucial, as a close above this level on high rising volumes would mean a return of positive sentiment. On its way up, the next resistance is expected to come at 9,938 points, which would be an intermediate resistance level that might not threaten the trend or momentum but could lead to some consolidation. However, a comfortable close above this level would mean the Sensex racing back to its tough resistance level of around 10,186 points, which would decide the general market trend.
Poor show: The BSE building in Mumbai. Another stimulus package may lead to a relief rally. Abhijit Bhatlekar / Mint
For the S&P CNX Nifty, the first crucial support for a falling Nifty is likely to come up at 2,829 points, which is very close to the current close of 2,857 points. A confirmatory close below this level, whether accompanied by huge volumes or sharply negative advance-decline ratio, would signal more drops in the coming sessions, with the next support coming at 2,674 points. However, if this level goes, then the next and a crucial support level would come at around 2,511 points, which would logically be the rock bottom.
On its way up, the Nifty is likely to test its first major resistance at 2,954 points, which would be a crucial resistance level to watch. If the Sensex closes past this level, then there would be an immediate resistance at 3,001 points. A close above this level would mean a reversal of the bearish trend, with more gains in the offing. The Nifty would, however, test its most crucial resistance level at 3,108 points, and a breach of this level could trigger the next rally.
Among individual stocks, Aditya Birla Nuvo Ltd, Tata Power Ltd and Tata Steel Ltd look good on the charts. Aditya Birla Nuvo, at its last close of Rs590.20, has a target of 612 and stop-loss of 558. Tata Power, at its last close of Rs730.40, has a target of Rs745 and stop-loss of Rs708. Tata Steel, at its last close of Rs212, has a target of Rs228 and a stop-loss of Rs196.
From the previous week’s recommendations, Reliance Industries Ltd touched a high of Rs1,377, but missed its target of Rs1,397 and later triggered its stop-loss. Housing Development Finance Corp. Ltd touched a high of Rs1,572 and almost met its target of Rs1,575, while ICICI Bank Ltd touched a high of Rs472.75, well below its target of 489, and later triggered its stop-loss of Rs450.
Vipul Verma is a New Delhi-based independent investment adviser. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org