More market casualties expected in coming weeks

More market casualties expected in coming weeks
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First Published: Sun, Nov 16 2008. 11 53 PM IST

Updated: Sun, Nov 16 2008. 11 53 PM IST
Occasionally, it is good to say “we told you so”. Last week, my column suggested that while there is an 85% probability of a rally on Monday, there could be uncertainty and volatility on the bourses based purely on what the technicals were suggesting.
Indeed, the Bombay Stock Exchange’s Sensex rose 5.7% on 10 November. But, for the week, it then fell 5.81%, while the S&P CNX Nifty fell 5.47%, on heavy selling. Equities tumbled for much of the week on global concerns, underscored by disappointing US economic data, growing turmoil in the key US auto industry and European economies slipping into recession.
With the weekend’s G-20 summit failing to show any clear-cut road map to steer the world out of the current slump—not that one expects good road maps from such summits, anyway—the worldwide economic crisis remains the focus of most investors and you can expect to see more stock market casualties in days and weeks to come.
In India, last week’s sharp drop in inflation rates, now down to single digits after a long time, was a big positive and was coupled with better-than-expected monthly infrastructure data, but the markets simply couldn’t be comforted. Still, increasingly proactive moves by the Reserve Bank of India could help sentiments as we go into the trading week.
There was a lot of intra-day volatility in Indian bourses, which means that there was some buying. Moreover, the India VIX—the National Stock Exchange’s index of volatility that measures the amount by which an underlying index is expected to fluctuate in the near term, based on the order book of the underlying index options—was more or less stable and was not as volatile as in previous weeks. This gives me a feeling of comfort.
Another factor adding to this comfort is that foreign funds, which led the bear run through heavy selling in 2008, have been net buyers for the month, through 12 November, to the tune of Rs1,100 crore.
While all this doesn’t mean sentiments on Indian markets are now turning bullish, it indicates that the intensity of the downtrend is not as severe compared with the last fall. While technicals indicate some more declines on the bourses, looking at volumes suggests that there would be some bargain buying at lower levels.
Purely technically, trading on the bourses may resume on a negative note on Monday, but after an initial fall, some bargain buying is likely to emerge with one caveat: If the Sensex fails to bounce back?on Monday,then the fall on the bourses could intensify.
However, if the Sensex sees a bounce back from lower levels, which is expected to come around 9,014 points, then it would face its first resistance level at 9,553 points. This would be an important resistance level, which, if broken, would trigger more gains, with the next resistance coming at 9,803 points. This would be an important resistance to watch as any selling coming around this level could terminate the northward momentum. However, a breakout above this level would mean an immediate resistance at 9,898 points.
If the Sensex manages to close above this level, then this would trigger further gains with the next resistance level expected only at 10,115 points. This would be a critical resistance level and its breach would mean the next level of resistance coming at a much higher 10,568 points.
On its way down, the Sensex is likely to test its first support at 9,014 points. This is an important support level as a close below this level would mean a further fall with the next support coming at 8,601 points. This would be an important level to watch as a close below this level would dent market sentiments considerably and could mean new lows in coming days.
For the S&P CNX Nifty, there is a strong resistance at 2,866 points. This would be an important level to watch as a comfortable breakout above this would mean gains, with the index facing its next resistance level in the 2,939-2,960 points band. This level would also be a critical level to watch as a close above this (not merely a breakout) would trigger positive sentiments and indicate gains up to 3,091 points as this would be a short-term, trend-deciding resistance. If this level goes, then the next and the most critical resistance would come at 3,237 points, which would be a confirmation of a new trend on the bourses. However, on its way down, the Nifty would test its first support at 2,780 points. This being a minor resistance, the index could go easily beyond and the next support is likely to come up at 2,686 points. This is a moderate support but if broken would indicate weak sentiments. However, there would be trend-deciding support at 2,523 points, which, if broken, would mean very weak sentiments and very high chances of new lows.
Among individual stocks this week, Bank of India, Tata Tea Ltd and Reliance Communications Ltd look good on the charts. Bank of India, at its last close of Rs279.60 a share, has a target of Rs292 and stop-loss of Rs262. Tata Tea, at its last close of Rs518.15 a share, has a target of Rs540 and a stop-loss of Rs491. Reliance Communications, at its last close of Rs218.85 a share, has a target of Rs232 and stop-loss of Rs202.
From the previous week’s recommendations, Aban Offshore Ltd, recommended at Rs970 a share, touched a high of Rs1,052, which was well above its target of Rs998. Axis Bank Ltd, recommended at Rs581.60 a share, touched a high of Rs613, which was comfortably above its target of Rs597, while Bharti Airtel Ltd, recommended at Rs648.05 a share, touched a high of Rs724.80, gaining 11.85%, and met its target comfortably.
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: Sun, Nov 16 2008. 11 53 PM IST