Much on expected lines, equities and key indices raced ahead of their critical resistance levels last week and touched new 52-week highs on a revival of the monsoon and positive investor sentiment on global markets. The markets moved up on all trading days of the week.
This week would be all about the US. More than the Dow, the dollar would be watched closely after the US unit fell to a one-year low against major currencies on Friday.
US economic data due in the week will also be crucial in setting the tone for global bourses including Indian markets. Among key US data scheduled for release this week are August retail sales on Tuesday, along with the Producer Price Index and a reading on July business inventories.
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Data on New York state manufacturing, the Consumer Price Index and industrial production in August are due on Wednesday. August housing starts data, a weekly report on initial jobless claims and a survey of factory activity in the US mid-Atlantic region are scheduled for Thursday.
Back home, there are no major economic indicators due in the week and Indian markets would take their cues from global bourses. The monsoon’s revival and cheer over the coming festive season would likely help counter economic worries and concerns about valuations.
Technically, the week is likely to start on a cautiously optimistic note and I expect equities to gain on Monday, tracking the strength of the rupee, although broader technical indicators are showing signs of consolidation.
The Bombay Stock Exchange’s benchmark Sensex, on its way up, is likely to test its first resistance at 16,355 points. This would be a moderate resistance level and would not affect the index’s momentum.
The next resistance level at 16,442 points would be comparatively strong and the Sensex will be able to cross this level only on good volumes. If this level is crossed, there would be further gains, with the next resistance level coming up at 16,588 points. This would be a meaningful and strong resistance level and could trigger consolidation and some profit selling. If the Sensex retreats from this level and closes below 16,355 points, it would be a confirmation of a technical correction.
If the Sensex manages to close above 16,588 points on good volumes, there would be further gains, with the resistance level shifting to 16,656 points.
On its way down, the Sensex would come across its first support at 16,122 points, which is a very important support. A comfortable close below this level or breach of this level with good volumes would mean weakness and the Sensex could edge lower. This would also be the beginning of a short technical correction. The next support level would come at 15,902 points, which most likely would be able to provide enough ground for the slide to halt.
However, if this level goes, selling could intensify and the Sensex may then aim for levels like 15,713 points, which should provide solid support.
In terms of the S&P CNX Nifty, the first resistance is likely to come at 4,889 points, which is a key resistance level. If this level goes, the Nifty would flirt with 4,912 points. This would be a moderate level and the next important resistance level would come at 5,004 points. On its way down, the Nifty is likely to test its first support at 4,784 points, which is an important level.
If the Nifty closes below this level or breaches it with heavy volumes, it would signal the onset of a technical correction, which would take the Nifty down to its next support at 4,720 points. This would be a moderate but meaningful support level. If this level goes, the next support would come at 4,681 points, which is likely to hold.
Among individual stocks, this week Yes Bank Ltd, Steel Authority of India Ltd (SAIL) and Orchid Chemicals and Pharmaceuticals Ltd look good on the charts. Yes Bank, at its last close of Rs175.20, has a target of Rs182 and a stop-loss of Rs167. SAIL, at its last close of Rs168.80, has a target of Rs175 and a stop-loss of Rs162. Orchid Chemicals and Pharmaceuticals, at its last close of Rs124.55, has a target of Rs131 and a stop-loss of Rs117.
From my previous week’s recommendations Bharat Heavy Electricals Ltd touched a high of Rs2,292, which was well above its target of Rs2,249. Hindalco Industries Ltd gained 18.72% and met its target very easily. IVRCL Infrastructure and Projects Ltd also met its target very easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org