Sunshine returned to the bourses after a long while as key indices shot up more than 12% over the week on fresh bargain hunting by funds and investors. Signs of the credit crisis easing and fairly good corporate results in India helped improve the sentiments.
Technically, too, the turnaround on the bourses was imminent and was categorically mentioned in last week’s column.
The first signal of the turnaround came on Monday when the Sensex closed above our projected bottom of 8,464 points. I had mentioned in my last column that if the Sensex bounces back and closes above 8,464 points, then the sanctity of this projected bottom would be confirmed.
The market moved on expected lines and the Sensex’s close on Monday at 8,509.56 points, after seeing a knee-jerk reaction which took it to 7,697 points, was the first signal of the turnaround.
Later, the market witnessed big rallies and has finally stalled that nervous momentum, which was very prone to sharp downward swings on signs of any bad news. Now the time is coming for markets to consolidate before taking its next course.
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This week would be interesting as buying is likely to continue initially on positive momentum following the Reserve Bank of India’s (RBI) latest steps, including a cut in key rate and cash reserve ratio, or the proportion of money banks have to keep with RBI.
This would further infuse liquidity into the system and calm the jitters in the financial markets. However, globally, the big daddy of all events—the US presidential elections—would dominate sentiments initially and there would be calm in global equity markets ahead of the outcome of election results.
Sunshine time: People watch a display screen on the Bombay Stock Exchange on Friday. The industrial output data for September will be released on Tuesday, and will be closely studied. Rajanish Kakade / AP
Back home, the positive sentiment would continue and markets would gain initially. However, on Tuesday, the data related to the industrial output for September would be watched carefully for clues on infrastructure-related activity. Any signs of a slowdown might affect sentiments. However, the negative impact would not be much, as globally, there would be a wave of optimism due to the US presidential elections.
On Monday, the data related to India’s trade deficit for September would also be released, but this may not impact the sentiments on the bourses. The regular dose of inflation data on 6 November would also be watched closely.
The markets are in the middle of an upswing and going by the technicals, the upward momentum would be sustained this week too. Prominent technical indicators such as MACD are in crossover mode and are pointing gains. But due to sharp gains on Friday, the short-term fast stochastic oscillators are pointing to some pullback or consolidation.
This view is also shared by the momentum indicator, which is also suggesting some consolidation before the next move. But other more prominent indicators like the14-day relative strength index and 14-day price rate of change suggest that the trend is likely to continue.
The analysis of the Sensex suggests that the index is currently north-bound and on its way up would come across its first resistance at 10,035 points, which is a moderate resistance level only and may not pose any threat to the Sensex.
If this level goes, then the next resistance level would come up at 10,259 points, which is also a moderate support level. A close above this level would be a positive sign and would signal strengthening of bullish sentiments as the next—and a very critical—resistance level would then come at 10,763 points.
This would be a strong and a critical resistance level to watch, as a break-out above this level would indicate the beginning of a larger rally, which would change the sentiments on the bourses completely.
However, a touch and go or pullback following break-out of this level or marginal break-out with very low volumes could be considered signs of a technical correction.
On its way down, the Sensex would test its first support at 9,465 points, which is a minor support and may not offer enough support to stem a fall in case the Sensex heads down. But the next support at 9,236 points would be a strong support and would offer a decent pitch for the Sensex to hang around for some time.
However, if the Sensex closes below this level, then the sentiments would then turn weak again indicating a further fall with the next support level coming at 8,857 points and a storing support at 8,406 points.
In terms of the Standard and Poor’s CNX Nifty, the index is currently very close to a critical resistance level of 2,918 points; break-out above this level would indicate good gains in the coming sessions, with the resistance placed at 3,085 points. A close above this level would be a positive indication, which would indicate further gains, with the next resistance coming only at 3,236 points. This would be an important level to watch as a close above this would ensure a strong rally on the bourses with next and critical support coming at 3,416 points only.
However, on its way down, the Nifty will have a strong support at 2,748 points. This level would be important to watch as a close below this would mean a further fall with next meaningful support coming at 2,631 points. This would be a moderate support only and if goes it would mean support shifting to lower levels such as 2,538 points. However, there would be a very strong support at 2,471 points.
Among individual stocks, Alstom Projects India Ltd, Punjab National Bank and Yes Bank Ltd look good on the charts. Alstom at its last closing price of Rs233.20 has a target of Rs249 and a stop-loss of Rs214. Punjab National Bank at its last closing price of Rs420.70 has a target of Rs439 and a stop-loss of Rs397, and Yes Bank at its last close of Rs68.20 has a target of Rs76 and a stop-loss of Rs58.
From the previous week’s recommendations, Bank of India met its target of Rs241 by touching a high of Rs245. Satyam Computer Services Ltd also met its target comfortably, touching a high of Rs314. Siemens India Ltd touched a high of Rs300, almost meeting its target of Rs301.
Vipul Verma is a New Delhi-based independent investment adviser. Your comments, questions and reactions to this column are welcome at email@example.com