Last week was a roller-coaster ride for global stock markets.
The US revealed disappointing data on its most important economic metric—jobs.
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US non-farm payroll data, the most important indicator of job creation in the world’s biggest economy, fell far short of market expectations. In the same week, however, there was data showing an improvement in Britain’s manufacturing outlook to its highest level in 16 years, boosted by rising exports and unprecedented levels of recruitment. There were also positive economic indications from France and Germany.
Signs of trouble in other European countries soured the economic optimism the data generated. In Ireland, service sector growth was sluggish.
Spain, tipped by a small minority of economists as next in line to follow Ireland for a European Union/International Monetary Fund bailout, saw its service sector contract for the fourth month in a row in November.
In yet another contrast, Federal Reserve chairman Ben Bernanke said in a CBS television interview recorded on 30 November that he does not rule out more than the announced $600 billion of Fed asset purchases.
Elsewhere, China declared a shift towards a prudent monetary policy, which essentially means a bias towards tightening, and Brazil raised bank reserve requirements, looking to cool a credit boom that is fuelling inflation. The sharp contrast in the economic scenarios adds to confusion about where the world economy is heading.
At the same time, easy liquidity is likely to ensure a continuous flow of money to risk assets, justifying the strong recovery witnessed last month despite worries over the euro zone debt crisis and China’s shift in monetary policy.
Back home, the week was very good, especially after two major scandals rocked the markets in the last few weeks.
Since economic indicators were back in focus, the markets seemed back in business. Better-than-expected infrastructure output data, quarterly gross domestic product (GDP) numbers and the HSBC Markit PMI (purchasing managers’ index) data lifted the gloom that had descended on the markets.
Going forward, the markets are likely to maintain a positive bias this week. Economic indicators in the week will be fairly light, with the Institute for Supply Management releasing its semi-annual economic forecasts for the US manufacturing and services sectors on Tuesday. The weekly mortgage data on Wednesday and jobless claims on Thursday will be watched closely. On Friday, Wall Street will scrutinize reports on import and export prices in November and the international trade deficit for October.
Technically, my studies clearly suggest that there are more gains likely in the early part of the week, which means that on Monday the markets would likely move up. In terms of support and resistance, the Nifty on its way up would test its first resistance at 6,018 points. This is a very crucial resistance level as a breakout above this level on high volumes would ensure gains upto 6,062 points. If the Nifty closes below this level, it would mean some consolidation. However, if the Nifty crosses this level and stays above it, the next critical resistance level would come at 6,162 points. If this level is also breached, there would be further gains with the next major resistance coming at 6,248 points.
On its way down, the Nifty has its first support at 5,958 points. It’s a minor support level and may not be able to withstand major selling pressure. If this level goes, the next support level would come at 5,909 points, which is again a moderate support level. The next and important support level is expected at 5,842 points. If the index doesn’t find support here, investor sentiment would turn very bearish.
Among individual stocks this week, Oil and Natural Gas Corp. Ltd (ONGC), HDFC Bank Ltd and Sesa Goa Ltd look good on the charts.
ONGC, at its last close of Rs1,319.60, has a target of Rs1,344 and a stop-loss of Rs1,283. HDFC Bank, at its last close of Rs2,395.65, has a target of Rs2,432 and a stop-loss of Rs2,346. Sesa Goa, at its last close of Rs308.15, has a target of Rs322 and a stop-loss of Rs292.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org