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More than oil needed to trigger market upswings

More than oil needed to trigger market upswings
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First Published: Mon, Aug 18 2008. 12 07 AM IST

Updated: Mon, Aug 18 2008. 12 07 AM IST
Equities and key indices fell last week in the absence of fresh triggers and on worries over slowing manufacturing, industrial and infrastructure sectors. Moreover, a downward revision of the gross domestic product (GDP) estimates by the government also cooled investors’ enthusiasm. A spurt in oil prices on Thursday triggered a fresh round of selling. Interestingly, oil prices retreated sharply when the US bourses opened, as the dollar climbed to six-month highs, outweighing concerns over possible supply disruptions due to the Russia-Georgia conflict.
Inflation numbers for the 12 months ended 2 August, which came in after the markets closed on Thursday, proved to be yet another disappointment, as inflation touched a new high at 12.44%, which was well above market expectations of 12.21%. Adding to the list of disappointments was the unabated selling by foreign funds, who remained net sellers during the week. So, in a way, last week can be billed as a week of disappointments, as it dampened investors’ sentiments.
Globally, the mood remained sombre with only the Nasdaq stock market, among global bourses, posting big gains over the previous week. However, despite the declines, there is some optimism on global bourses that if oil prices remain south-bound, there could be renewed interest in equities. But if oil prices rise again, there would be sharp reactions on the bourses.
Indian bourses
Indian bourses, which witnessed their best five-week-run in 2008 are showing signs of tiring. Though this does not mean there would be one way selling or a heavy sell-off, it clearly means that the markets would need more triggers to reverse sagging sentiments.
Looking grim: A file photo of stock brokers in Mumbai. Last week can be billed as a week of disappointments. Photograph: Punit Paranjpe / Reuters
Oil and lower inflation numbers could be possible triggers, but investors would prefer a steady trend in both these numbers rather than sporadic movements. The Bombay Stock Exchange’s Sensex, which has just crossed below a 14-day moving average, is suggesting a negative undertone, but the MACD (20, 60, 9), is still headed up and is inching close to the zero line, which suggests that on a broader spectrum the trend appears to be intact. However, the emerging convergence suggests that if the current fall on bourses continues for a few more sessions, then it could impact beyond the short term.
So, the next few days would be very crucial as the markets might get some direction.
Sensex swings
This week, the markets may be under pressure initially with the BSE Sensex likely to test its first major support at 14,551 points. As this is an important support level, the undertone on the bourses could turn negative if the Sensex closes below this level, as it would mean more selling in coming session(s).
The next level would be at 14,389 points, which is a moderate support level. If this is also breached, then the Sensex would test its decisive support at 14,071 points, a key level, because below this, there could be sharp fall.
However, on the upside, the Sensex is likely to test its first resistance at 14,921 points, which is a moderate resistance only, with the next key resistance level placed at 15,034 points. If the Sensex closes above this with higher rising volumes, then this would be a positive signal and indicate more gains. The next level of resistance for a rising Sensex would be at 15,283 points, which is a moderate level, and, if that is breached, the next target would be at 15,409 points. A close beyond this would mean sharp gains on the bourses, which would take it to 15,767 points.
Other indices
In the case of S&P CNX Nifty, the outlook is heightened uncertainty and volatility initially and in case the market falls, the first support will come at 4,389 points. But this would offer only moderate support to the falling Nifty. However, if Nifty bounces back from this level, then it would be a positive sign.
In case the Nifty falls below this level, then the next support will slip between 4,334–4,310 points, which would be a crucial band. A close below this level would mean trouble in the short term, as there would be more falls, which might take the Nifty to its strong support level at 4,089 points. If Nifty closes below this level, then there would be big trouble on the bourses for the bulls.
Among sectoral indices, the BSE small cap is showing signs of weakness and could be headed towards its support level of 6,977 points, following which the fall could intensify and may take the BSE Small- Cap Index to 6,910 points and 6,790 points, respectively. In case of resistance, this index would face tough resistance at 7,310 points.
The BSE Mid-Cap Index is also showing lack of strength though it is still above its 14-day moving average. It is likely to face strong support at 5,703 points and 5,634 points, respectively. On its way up, the index may test strong resistance at 6,014 points.
Among other indices, the BSE health care index is showing a fair amount of strength and the index is likely to move up with short term target of 4,330 from a close of 4,281.96.
Stock picks
Among individual stocks, Grasim Industries Ltd, Satyam Computer Services Ltd and Ansal Properties and Infrastructure Ltd look good, technically speaking. Grasim Industries, at its last close of Rs2,056.85 a share, has a target of Rs2,120 and stop loss of Rs1,995. Satyam Computer Services, at its last close of Rs412.95 a share, has a target of Rs426 and stop loss of Rs394. Ansal Properties and Infrastructure, at its last close of Rs102.25 per share, has a target of Rs109.50 and stop loss of Rs94.
From our previous week’s recommendations, Patel Engineering Ltd touched a high of Rs471 a share, well above its target of Rs465, Tata Power Co. Ltd recommended at Rs1,059.50 a share, touched a high of Rs1,090 and met its target of Rs1,088 easily. However, Development Credit Bank Ltd fell short of its target. Since it was clearly mentioned in last week’s column that the target for DCB could extend beyond the week, it remains a valid recommendation.
Vipul Verma is a New Delhi-based independent investment adviser. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Mon, Aug 18 2008. 12 07 AM IST