Volatility likely to continue; US data crucial this week

Volatility likely to continue; US data crucial this week
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First Published: Sun, Nov 25 2007. 11 13 PM IST

Vipul Verma
Vipul Verma
Updated: Sun, Nov 25 2007. 11 13 PM IST
Vipul Verma
Key indices and equities fell in a highly volatile trading week as funds and traders unwound long positions. Indian shares, which were earlier looking rather insulated from some global trends, also saw declines. It was also fuelled by some unwinding of positions ahead of expiry of derivative contracts this week.
During the week, though some selling by foreign funds was also seen on unwinding of participatory notes, there was supportive buying by domestic funds. This helped the market recover towards the end of the week, pushing it comfortably out of any danger zones.
This week, the volatility in the market is likely to continue, mainly due to the expiry of derivative contracts for November. Since there are no positive cues expected, it will be interesting to see the roll-over to the next cycle.
This is a crucial week from the US data point of view, including numbers about the housing market, orders for durable goods, and personal income and spending figures. The numbers are vital as they will clearly show where the US economy is headed in the fourth quarter and may actually work as a trigger for global markets, including India.
The existing housing sales numbers are not likely to spring any surprises as analysts expect them to drop further below the eight-year low of 5.04 million in September. If the existing home sales data, due on Tuesday, shows any improvement, it would be a positive trigger. Data for new home sales is expected on Thursday and is also likely to show a negative trend.
Other data related to housing is expected on Friday and will throw light on October construction spending. Going by expectations, even this data could show a decline despite a moderate rise in September. But there is a silver lining to this negative bias of data. The weakness in housing would add to the view that the US Federal Reserve may take an aggressive view on interest rates in its December meeting, so the markets are not likely to react sharply negative to the weak housing data.
Any positive surprises will be welcome, as it would suggest all is not that bad with the US economy. No matter what the data reveal, speculation on the likely Fed action is going to rise, which would keep emerging markets on tenterhooks. As of now, opinion is divided on the Fed’s action. But with last week’s number showing that more Americans continue to receive jobless benefits, there would be more negative bias attached to it. The data related to consumer spending is also likely to show negative bias. So in view of these numbers and expectations, markets are clearly lacking any positive triggers globally.
Signs of revival
Meanwhile, Indian markets are showing signs of a revival after correction and consolidation during the last week. Purely technically, the market is now at a critical juncture and, despite weak global cues, is indicating that if it could cross above 18,912 points in the initial part of the week with good volumes, and stay above it, then there could be a short rally on the bourses.
The resistance of 18,912 points is thus very important, following which the Sensex may face its next resistance at 19,268, which will only be a moderate resistance level. The big resistance for a rising Sensex would come at 19,557.
Interestingly, going by long-term technical indicators, if the Sensex closes above 19,512 points, this would confirm the resumption of a bull run. On its way down, the Sensex is likely to see its first crucial support at 18,564 points, which would be a moderate support only as the next support will come at 18,172 and 17,967 points.
Our stock picks
This week, technically speaking, stocks such as Tata Motors Ltd, Tata Power Co. Ltd and HDFC Ltd look good. Tata Motors, at its last close of Rs714.65 a share, has a potential to touch Rs739 with a stop-loss of Rs684. Tata Power, at Rs1,149.70 a share, has a short-term target of Rs1,198 and a stop-loss of Rs1,086. And HDFC, at Rs 2,666.30 a share, has the potential to move up to Rs2,780 with a stop-loss of Rs2,522.
From our last week’s picks, Unitech Ltd, recommended at Rs389.75, hit a high of Rs404 but missed its target of Rs418. Union Bank of India, recommended at Rs185.35, hit a high of Rs200, but just missed its target of Rs203. And Reliance Natural Resources Ltd, recommended at Rs167.45, hit a high of Rs174.10 against its target of Rs186.
Vipul Verma is a Delhi-based investment adviser. Your comments, questions and reactions to this column are welcome at ­ticker@livemint.com
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First Published: Sun, Nov 25 2007. 11 13 PM IST