Key indices and stock prices bounced back last week on renewed buying by funds and retail investors on optimism that 2009 would be a better year economically. Technically, a correction normally extends to as much as 62% of the previous rally and stretches for up to 27 months.
Because the correction in terms of a retracement has come rather fast, there are hopes that there could be an early end to the gruesome bear run on the markets, leading to optimism about prospects for the new year.
The measures announced as part of the stimulus package are basic necessities to lift economic growth. But larger economic concerns of demand and supply still remain. As far as the impact of the stimulus package on stocks is concerned, it will boost the market in the short term. However, investors would look for cues from the third quarter financial results of companies that would start announcing them soon.
A lot of bad news about corporate earnings has already been discounted and a moderately poor performance by companies would not dent investor sentiment. However, any sharp fall in profits and projections for coming quarters could do considerable damage.
The earnings season will begin next week in a big way when companies such as Infosys Technologies Ltd, ITC Ltd, Reliance Industries Ltd, ICICI Bank Ltd, Tata Consultancy Services Ltd, HCL Technologies Ltd, Reliance Natural Resources Ltd, HDFC Bank Ltd and Reliance Energy Ventures Ltd will announce their results.
Next week would largely decide the trend on Indian bourses. Though early leads would be available this week—also with some important corporate numbers—the reaction to initial financial results will be muted.
Globally, sentiment is likely to remain flat with a positive bias in the absence of any major market-moving news lined up during the next week. However, there would be optimism ahead of Barack Obama taking over as the next US President.
The economic calendar of the US is busy this week with some important data releases scheduled, apart from a host of financial numbers. So, it would be better to take into consideration the global factors as well before making an investment or a trading call.
Technically, the market is poised for further gains in the initial part of the week. The undertone is reasonably strong and is likely to push the Bombay Stock Exchange’s Sensex beyond its recent high of 10,186 points shortly. For a rising Sensex, the first resistance would come at 10,072 points, which will only be a moderate level. This level may not offer any significant hurdle to a rising Sensex and the index may overcome this level easily (probability 95%).
However, the next resistance would come at 10,186 points, and that would be an important level. There is a 90% chance that the Sensex would cross this level despite this being a relatively stronger resistance level.
If the Sensex closes above this level, then the next resistance for the rising Sensex would come at 10,489 points. This level would be a moderate resistance level only and may not offer any significant threat to northward momentum.
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However, if this level also goes, there would be a very important resistance level at 10,744 points. This level would offer very strong resistance to a rising Sensex. It is most likely that there would be good profit-selling around this level, which could well end this leg of rally.
However, if due to strong momentum, this level is crossed, there would be a sharp, short rally, which could help the Sensex steer past 11,000 points.
On its way down, the Sensex might test its first support at 9,789 points. This would be a moderate but important support level for a falling Sensex.
A close below this level would mean more declines in the coming days amid a weak undertone, which might pull the Sensex down to its next support level at 9,588 points. This level is also a moderate support level and may not be strong enough to restrict the fall.
Traders’ cue: The Bombay Stock Exchange. The earnings season will begin next week in a big way, with companies such as Infosys, ITC, Reliance Industries, and ICICI Bank announcing quarterly results. Ashesh Shah / Mint
But a close below this level would be considered a fairly bearish signal, which would mean more declines with the Sensex slipping to 9,171 points for its support.
In terms of the S&P CNX Nifty, on its way up, the first resistance level would come at 3,079 points, which would be a minor level and would be crossed easily.
However, a close above this level would push the next resistance level at 3,118 points. This would be a very important level to watch, as a close above this level would mean a rally which would see the next meaningful resistance coming at 3,230 points. This level might offer very strong resistance to a rising Nifty.
However, a close above this level would mean short, sharp rally.
On its way down, the Nifty would test its first support at 2,991 points. This is a moderate but very critical support level as a close below this would mean a weak undertone and more declines with the next support coming at 2,938 points.
However, if the Nifty closes below this level, then the undertone on the bourses could turn substantially weak, with the next support coming at 2,578 points.
Among individual stocks, HDFC Bank, ICICI Bank and ABB India look good on the charts. HDFC Bank, at its last close of Rs1,015.65, has a target of Rs1,046 and a stop-loss of Rs978. ICICI Bank, at its last close of Rs471.25, has a target of Rs491 and a stop-loss of Rs449. ABB at its last close of Rs490.30 has a target of Rs508 and stop-loss of Rs467.
From the previous week’s recommendations, Aditya Birla Nuvo Ltd touched a high of Rs614.65, meeting its target of Rs612 easily. Tata Power Ltd touched a high of Rs793.70, which was well above its target of Rs745. Tata Steel Ltd hit a high of Rs235.70, which was also well above its target of Rs228.
Vipul Verma is a New Delhi-based independent investment adviser.
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