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Key levels to dictate how Sensex moves

Key levels to dictate how Sensex moves
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First Published: Mon, Jun 04 2007. 01 57 AM IST
Updated: Mon, Jun 04 2007. 01 57 AM IST
This week on our technical radar are stocks such as Tata Steel Ltd, Mahindra and Mahindra Ltd (M&M) and United Phosphorus Ltd. Tata Steel, at its last close of Rs635, has a potential to move up to Rs662 with a stop loss of Rs605. M&M has been in a bullish mode for quite some time and, at the current price of Rs761, has a potential to move up to Rs788, with a stop loss of Rs738. United Phosphorus, at the current market price of Rs292, is a very good technical bet with a target of Rs320 and a stop loss of Rs277.
From our last week’s technical picks, Reliance Capital Ltd, recommended at Rs976.75 touched a high of Rs1,006 but missed the target of Rs1,022. State Bank of India, recommended at Rs1,298, surpassed its target of Rs1,340 touching a high of Rs1,385. While Century Textiles Ltd, recommended at Rs628 touched its target of Rs645 on Monday itself.
Ultratech Cement Ltd remained under consolidation and could not cross its resistance level of Rs849 decisively, despite touching this level momentarily. It was mentioned that the stock would witness a rally once it breaks this level. Since the resistance is not broken decisively yet, the stock is still in a buy mode.
Sensex has now come within striking distance of its lifetime high of 14,723.88 points set in February and most likely the rising momentum will see this level become history.
Technical analysis of the key indices suggests that the bullish trend is intact and the markets should gain in the initial part of the week. On its way up, Sensex now has its main resistance at 14,724 points, which is its all-time high. If this resistance is breached then the market may see a good rally, which could take it up to 15,127 points. However, on the downside, Sensex is likely to witness a support at 14,374 points, which is an important support level. If this support is broken, then Sensex may slip further to around 14,040 points.
Macro factors
Global signs for this week also don’t pose much threat to the bullish trend, as there is no major data due which may alter the sentiments on US bourses. The week starts with a report on April US factory orders on Monday. Going by general sentiments, this will be good and should boost sentiments further. On Tuesday, there will be a report from the Institute for Supply Management on May activity in the service sector. This is also not likely to hold any major surprises. Big American retail chains are set to release May sales figures on Thursday, which may be watched carefully by investors for some important cues. Other than the US, Chinese bourses may dominate sentiments and if Chinese regulators try to cool off their markets, then it may affect the sentiments temporarily.
Markets wrap
Stock markets closed on positive notes last week amid high volatility on global cues such as the sharp hike in stock trading tax in China taking some steam off the ongoing rally on bourses. However, a reassuring rally on the US bourses on good economic data strengthened the sentiments again and eased fears about Chinese bourses. Though the markets have recovered from China’s mid-week sharp slide and even the metals are back on their track, the impending fear of Chinese bourses is still not over. It’s widely believed by traders that China may now impose a stock capital gains tax to further cool down the market. However, this time the concerns over such a move are not as alarming as it was before. In a way the strength of US economy has counter balanced the risks of Chinese bourses and this has paved way for further gains on global bourses including India.
Data related to Indian economy has also been very encouraging during the last week as positive surprises by the gross domestic product numbers fuelled the current rally. Also falling inflation, which has now come down to acceptable levels has reassured investors that as of now the worst is over. Moreover, smooth rollover of positions to the next derivative cycle has further ensured that the trend on bourses is quite bullish and there is a lot of investor’s interest in the markets. Good progress of the monsoon over southern India and ample liquidity despite mega initial public offerings (IPOs) such as the DLF Ltd IPO are also other positives for Indian bourses.
It was widely feared that the Indian markets may come under some selling pressure due to the mega issue of DLF, which will be open for subscription from 11 June to 14 June and it was assumed that the small investors would withdraw money from the secondary market to invest in the DLF issue. However, strong rollover of positions and ongoing rally in mid-cap stocks indicates that these assumptions were not true. Also strong money flows from funds, especially the foreign funds has ensured that there would be no liquidity problem, and the buoyancy would remain on bourses despite DLF and the other big issue coming from ICICI Bank Ltd.
Vipul Verma is a Delhi-based Investment Advisor. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Mon, Jun 04 2007. 01 57 AM IST
More Topics: Money Matters | Equities |