Fed action, Key data to dictate trends

Fed action, Key data to dictate trends
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First Published: Mon, May 07 2007. 01 23 AM IST
Updated: Mon, May 07 2007. 01 23 AM IST
With the earnings season drawing to a close, the equity markets are once again looking for direction in the absence of fresh triggers to buy. Though sentiments on bourses remain upbeat due to buying by funds in frontline and mid cap stocks following a better-than-expected earnings season so far, the aggregate trend on bourses still remain sideways despite some strong sessions.
During the last week, the market showed divergent trend and ended with a gain of just 0.18% over the previous week and despite high intra-day volatility, it remained sluggish overall. However, it is worth mentioning about last week’s trading that mid-cap and small-cap stocks witnessed good buying—this is a big consolation for bulls. It suggests a shift in the interest of investors from frontliners to mid caps with sentiments still remaining upbeat.
This week, the market will continue to look for positive triggers and all eyes will be on meeting of the US Federal Reserve’s policymakers for any shift in their stance on interest rates. The federal open market committee meets on Wednesday, 9 May, and it is by and large expected that the policymakers will keep the benchmark federal funds rate unchanged at 5.25%. A cut in interest rates would be welcome, but any hike can hit the US and global bourses negatively.
The coming Friday will be a very important day from the data point of view and can give necessary direction to global as well as domestic bourses. This Friday, reports for April on US producer prices and retail sales are expected; these will be watched carefully by investors globally for cues on future trends. On the domestic front, besides inflation numbers, data for industrial production for March is due on Friday.
This will be an important indicator as the market will be watching other indicators such as credit growth and M3 (essentially, an aggregate of all money in the financial system) to see if these are slowing down, after the Reserve Bank of India’s decision last month to leave rates steady. So, going by fundamentals, there is a lot in offing this week, and the market may consolidate broadly and may react to the data depending on its intensity.
Technically, the market looks good as long as the BSE Sensex holds the level of 13,700 points. The charts suggest some upward move initially despite weak closing on Friday and the level of 14,114 points would be an important one to watch. If the Sensex manages to close above this level, then it would boost the sentiments and signal more gains as the next resistance for a rising Sensex is placed at 14,358 points. If this resistance is also breached then the market may shift into top gear and might gather momentum to touch its all-time high. However, on the downside, the market may witness some selling pressure, if the Sensex closes below 13,700 points as the next support level is placed at 13,554 points. However, there is a rock-solid support for the Sensex at 13,400 points if the falling Sensex breaches the above-mentioned support level.
On our technical radar this week are Parsvanath Developers Ltd, Videsh Sanchar Nigam Ltd and Jet Airways Ltd. Parsvanath Developers is currently trading at Rs322.50 and technically has a potential to move up to Rs355 with a stop loss of Rs300. VSNL is currently trading at Rs450 and is looking bullish at current levels.It has potential to move up to Rs480 with a stop loss of Rs425. Jet Airways Ltd closed at Rs723 and is presently in consolidation phase and is likely to see a break-out on the up side and can move up to Rs765 with a stop loss of Rs695.
From our last week’s recommendation, Tata Consultancy Services Ltd and Sree Renuka Sugar Ltd did very well. TCS, met its target of Rs1,285 easily and gained even further. Sree Renuka Sugar Ltd had a very high target of Rs474; however, the stock crossed this target and registered gain of over 9% during the week.
Maruti Udyog, too, gained during the week, but fell short of its target of Rs835.
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, May 07 2007. 01 23 AM IST
More Topics: Money Matters | Equities |