Market sentiments continued to remain on edge at the close of last week, as worries over rising inflation are leading investors to fear more monetary tightening by the central bank.
Moreover, worries over recessionary pressure in the US and fears of continued spillover from the troubled US subprime mortgage lending sector have added to the woes of the market. The market is clearly looking for positive triggers to try and get rid of the bear hug.
This week, very critical from the data point of view, and may indeed give the market some positive triggers. On Tuesday, The first such data is expected, whenthe US will report its housing starts and building permits. This will be followed by the Federal Reserve’s policy-setting meeting on Tuesday and Wednesday.
The two-day meeting is critical from the stock market’s point of view, as global markets will be looking closely for clues to the future of US rate action.
While no rate move is expected in this meeting, it is by and large expected that the Federal Reserve may hint at cutting interest rates some time later in the second quarter or early in the third quarter.
The outcome of this meeting could give a direction to the global equities markets especially to the emerging markets and more particularly in India.
Investors should wait for the outcome of this meeting to ascertain their future courses of action. Any positive outcome of the Federal Open Market Commitee (FOMC) meeting would be greeted by gains, but weekly inflation data scheduled for Friday would keep big investors at bay, with the market eagerly watching for these numbers. As the harvest season is drawing near, inflationary pressure is likely to ease, but as long as such pressures remain high, inflation is a cause for concern.
Looking forward, the charts show choppiness ahead, with selective buying in some stocks. This means that any further slide on the bourses is not likely to be sharp and that value-buying has started emerging.
An analysis of Nifty futures suggests the building up of fresh short positions, as the discount to Nifty futures increased further on Friday and its open interest rose 1.31% to 37.47 million units. But long positions were built in telecom stocks, which suggest that these stocks could bounce back if the market gets any positive triggers.
Technically also, the market is still in a downward consolidation phase and though it is trading near its short-term support, there is risk even at this level. The only comfort factor for the market was the closing of Sensex above its 200 day simple moving average.
Had the Sensex closed below this level, then the support at 12,288 points would have weakened.
This week, on its way down, the Sensex is likely to test support at 12,288 points. If this support is breached, the next support level is placed at 12,026 points, which is a key support level. Below this, the market may witness a knee-jerk movement, which could see the Sensex briefly touching 11,819 points.
On its way up, the Sensex would test resistance at 12,636 points; but being a minor resistance, this is not likely to pose any threat to the rising Sensex and the next resistance is expected to come up at 12,788 points, which if broken could take the Sensex to 13,059 points. This is a critical resistance level and if this is also breached then it would trigger more buying on bourses.
This week, Hindalco Industries, Reliance Energyand Jet Airways look good on charts.
Hindalco Industries has a strong resistance at Rs132.45. If this resistance is broken, then there could be upward move of over 6%, which can take it upto Rs141 in the short term.However on the downside, the short-term strong support is placed at Rs123.
Reliance Energy, is trading near its strong short-term support level and has the potential to move up to Rs490, if the support level of Rs446 is maintained.
The stock has a strong resistance at Rs493, which, if crossed with rising volumes, could mean that investors can expect even higher levels such as Rs525. The stock is also a good medium-term buy, with the caveat that one needs to watch for the support levels.
Another interesting stock from a technical perspective is Jet Airways. This stock is in a consolidation phase and is signalling breakout on the upper side. On its way up, the stock will have resistance at Rs583 and then at Rs618. Investors can treat the second resistance level as a short-term target also. Jet Airways on its way down may find a rock-bottom support at Rs530.
(Vipul Verma is a Delhi-based independent investment advisor. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org)