Mood on bourses is cautiously bullish; market needs more triggers

Mood on bourses is cautiously bullish; market needs more triggers
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First Published: Sun, Aug 03 2008. 11 05 PM IST

Need for caution: General Motors world headquarters in Detroit, USA. The company has reported a $15.5 billion quarterly loss. (Photo: Bill Pugliano/Getty Images/AFP)
Need for caution: General Motors world headquarters in Detroit, USA. The company has reported a $15.5 billion quarterly loss. (Photo: Bill Pugliano/Getty Images/AFP)
Updated: Sun, Aug 03 2008. 11 05 PM IST
The uptrend on the bourses continued for the second consecutive week with the Bombay Stock Exchange’s benchmark Sensex index gaining around 382 points over the previous week, while the National Stock Exchange’s S&P CNX Nifty ended around 102 points higher than the previous week’s close. The gains were expected and I had siad on 21 July that the markets could rise for two weeks.
Need for caution: General Motors world headquarters in Detroit, USA. The company has reported a $15.5 billion quarterly loss. (Photo: Bill Pugliano/Getty Images/AFP)
Those two weeks are now behind us. The mood on bourses is cautiously bullish and the market needs more triggers to maintain the momentum. The fall in global crude prices triggered gains during the last week but crude prices remained volatile amid escalating tensions between Israel and Iran.
Prices of oil that fell from a peak of $147.27 (around Rs6,244), touched on 11 July, remained very volatile towards the end of the week and a technical analysis suggests that they may move up during this week and touch $132 a barrel (on Friday, crude closed at $125.10 a barrel). In case oil prices move up, it will have a negative impact on Indian equity markets, especially in view of the fact that inflation now stands close to 12%. Moreover, the outlook of global markets is also turning extremely cautious with some downward bias, especially after General Motors reported a $15.5 billion quarterly loss, dampening the sentiments and earnings outlook of global majors.
In India, the earnings season has been good so far, but the market is falling short of triggers, as good earnings have already been discounted. Does that mean the party is over on the bourses? The answer is clearly no. The reason why Indian markets may continue to gain in the initial part of the week is that as of now we do not have any negative triggers either, and during the last week, foreign funds remained net buyers in the cash market, which is a big plus.
Moreover, with the Indo-US nuclear deal moving ahead, the build-up of positive sentiments will continue to push markets further. However, the situation may change if oil boils again, which, technically, is a strong possibility. But as long as oil remains stable or falls, the mood on the bourses will continue to remain cautiously bullish.
Technically also, there is still some steam left in the northward trend, which may take the Sensex to 14,812 points, which means a gain of another 155 points, before the first crucial resistance level comes into play. As long as the Sensex closes below this level, its relevance will remain intact. However, if Sensex closes above this level, then the next resistance level will come at 15,132 points. This resistance level will be a very important level to watch as it may turn out to be the last leg of the current rally as well, especially if the Sensex does not comfortably close above this level with rising volumes. If the Sensex closes above this level, then there is an immediate resistance at 15,403 points, following which there could be sharp gains, which may take the Sensex to 15,778 points. On its way down, the Sensex is likely to test its first support at 14,469 points, following which the next support is expected to come up at 14,321 points. If this support is breached for any reason, the next key support will come at 14,031 points, which will decide the fate of the current trend as a close below this level will turn things distinctly bearish with the next support coming at 13,721 points.
For the S&P CNX Nifty, the first resistance level is expected at 44,96 points, and because this is a moderate resistance, it is not likely to be a big hurdle for the rising Nifty. A close above this level would result in a bullish trend, which would push the next resistance level at 4,679 points. This will be a crucial level to watch, as a close above this level would signal more gains with next and key resistance coming up at 4,804 points. However, on its way down, the Nifty is likely to witness its first support at 4,338 points. This being a strong support it would be crucial to understand the short-term movement of the Nifty. A close below this level will trigger a downtrend on bourses, with the next support coming at 4,287 points. If this support level is breached, there is an immediate support at 4,236 points, followed by a very crucial and solid support coming up at 4,154 points. These levels will decide the short-term outlook of the Nifty.
Among the sectoral indices, the BSE MidCap (the index of firms with mid-sized market value) is likely to gain and has its key resistance at 5,850 points (current close 5,642.74). Technically, the charts suggest that the momentum in the midcap index is stronger than that in the Sensex and S&P CNX Nifty. This may be a good trading tip for short-term investors as it suggests that the chances of gains in midcap stocks are higher this week compared with frontline stocks. The BSE Small-Cap index (of firms with small market value) too signals a positive trend with sustained gains, which means that this index is now poised to gain steadily and could rise with 7,300 points as its next target (it closed Friday at 6,980.10 points). Among other sectoral indices, the BSE Metal index is looking good on our charts, signalling hefty gains in this week. It has a strong resistance at 13,344 points, followed by 13,982 points and 14,441 points. Our analysis shows that metal stocks, despite being under pressure, could outperform the broader market.
The trading strategy for this week could be to proceed with caution?and?with?small?targets.
Among individual stocks, Century Textiles and Industries Ltd, Sterlite Industries (India) Ltd and Tech Mahindra Ltd look good on our charts. Century Textiles and Industries at its last close of Rs491.25 has a target of Rs516 and a stop-loss of Rs461. Sterlite Industries at its last close of Rs632.30 has a target of Rs654 and stop-loss of Rs602. And Tech Mahindra at last close of Rs756.25 has a target of Rs778 and stop-loss of Rs729. Century Textiles and Industries and Sterlite Industries were both recommend last week too, but as they still have a lot of steam left they are in focus this week as well.
From our previous week’s recommendations, Century Textiles and Industries touched a high of Rs506, which was well above its target of Rs496. Sterlite Industries recommended at Rs602.85 met its target of Rs634 very comfortably by hitting a high of Rs640. However, ABB triggered its stop-loss.
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: Sun, Aug 03 2008. 11 05 PM IST