International cues to set the pace for markets

International cues to set the pace for markets
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First Published: Sun, Sep 20 2009. 10 09 PM IST

Updated: Sun, Sep 20 2009. 10 09 PM IST
Markets closed with gains last week on higher inflows from foreign and domestic funds and increased evidence of greater stability in global economies.
A statement by Federal Reserve chairman Ben Bernanke about the US emerging from recession, increased merger and acquisition activity in the US and an upgrade in the outlook for several firms boosted investor sentiment the world over, leading to gains on global bourses.
At least initially world markets danced to the beat of the dollar index, which fell after strengthening at the beginning of the week. This trend is likely to continue.
In India, better-than-expected advance tax numbers for the second quarter raised optimism about the outlook for the economy, which triggered fresh buying on the bourses.
The S&P CNX Nifty briefly touched the psychologically important 5,000-point mark, but failed to sustain above the level. At close of the week, key indices were up about 3%, quite impressive compared with the performance of other major global markets. US bourses rose 2.25%.
The markets are likely to consolidate in this holiday-shortened week, which will mark the expiry of derivative contracts for September. I do not see the expiry as a problem because the rollover has been very good and there is active buying interest in the contracts for the next cycle, which reflects bullish sentiment. From a broader angle, the markets would see more consolidation and then a breakout. Markets are closed on Monday, so the opening on Tuesday would be governed by the overseas trend.
Global bourses would, in turn, look anxiously to the meeting of the Federal Open Market Committee on Tuesday and Wednesday for the policymakers’ assessment of whether the world’s largest economy is improving. This could be the next trigger for US bourses.
Looking up: The BSE building in Mumbai. The markets are likely to start off on a positive note on Tuesday and gain initially. Abhijit Bhatlekar / Mint
Key data to watch in the US include existing home sales, a report on new orders for durable goods such as washing machines and refrigerators, new home sales and a final reading for September on consumer sentiment. All these data would be crucial for deciding whether the Dow is set to cross 10,000 points or not.
Back home, technically the markets are likely to start off on a positive note on Tuesday and gain initially. If the gains are accompanied by good volumes, the momentum would pick up. In terms of the S&P CNX Nifty, the first resistance for a rising index would come at 4,989 points. A comfortable break above this level on good volumes would mean a gain of roughly 45 points. The next resistance level would then come up at 5,034 points, likely to followed by some consolidation.
If the Nifty closes above this level, the next resistance would come at 5,104–5,134 points, which would be a major hurdle for the rising index. My analysis strongly suggests that these would be the levels to become extremely cautious about. The probability of heavy profit selling would be very high.
In the immediate term you may call it the termination point of the rally, which has been on for some weeks now. However, this would be just a technical correction as the long-term trend would continue to remain bullish.
If the Nifty retraces from the current levels, for which the probability is low unless the global trend forces it down, the first support is likely to come at 4,930. Any fall below this level on good volumes would be a negative signal and mean further declines, which would push the support level to 4,881 points. This would be a moderate support level and any weakness following the breach of this level could see the Nifty being pushed to 4,791, which is likely to be a strong support level.
In terms of the Sensex, on its way up, the index faces its first resistance at 16,831 points, which is likely to be overcome easily. The next resistance for the Sensex would come at 16,904. This would be a moderate resistance level, at which the index could see come consolidation or mild profit selling. A close above this level would push the resistance level to 17,134 points. The index faces very strong resistance at 17,269 points, which could well be the termination point of the current rally in the immediate term as heavy profit selling may ensue.
On its way down, the Sensex would test its first support at 16,607 points followed by 16,447, which is important and strong support. A bounce from this level would be bullish. If the Sensex settles below this level, there would be more declines with the floor at around 16,131.
Among individual stocks, this week Bharat Heavy Electricals Ltd (Bhel), Hindustan Zinc Ltd and Punj Lloyd Ltd look good on the charts.
Bhel, at its last close of Rs2,274.05, has a target of Rs2,321 and a stop-loss of Rs2,228. Hindustan Zinc, at its last close of Rs826.96, has a target of Rs846 and a stop-loss of Rs811, while Punj Lloyd, at its last close of Rs272.80, has a target of Rs288 and a stop-loss of Rs254.
From my previous week’s recommendations, Orchid Chemicals and Pharmaceuticals Ltd gained 38% during the week, Yes Bank Ltd added 15.87%, and Steel Authority of India Ltd rose at least 9%. Needless to say, all of them met their targets quite comfortably.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Sep 20 2009. 10 09 PM IST