Equities suffered a rout globally last week on fears of another credit crisis stemming from Greece’s souring finances and the dramatic sell-off on US bourses on 6 May that caused the Dow Jones Industrial Average to slide around 1,000 points.
US authorities are still trying to find out what triggered the decline that temporarily wiped out at least $1 trillion (Rs45.6 trillion) in market value. The rout was fuelled by waves of high-frequency computerized trading.
The cancellation of trades done on 6 May led to huge volatility on US bourses on the following day. The US Securities and Exchange Commission announced the cancellation of transactions in at least 250 stocks on the Nasdaq, adding to a long list of “busted” transactions on NYSE Euronext’s Arca and other exchanges and trading venues.
The uncertainty and confusion around the cancellation led to some panic on Friday. European markets fell in sympathy with US counterparts.
Ironically, last week was the best in recent months for macroeconomic indicators in the US. The private sector ADP employment report, weekly jobless claims and non-farm payroll data were impressive and vouched for a strong recovery in the world’s biggest economy.
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Consumer sentiment and home sales data added to the sense of comfort about the US economy. In India, manufacturing growth remained high and inflation appeared to have been tamed. But the Greek contagion fears cast cloud over investor sentiment. At the close of trading last week, global markets were at two-eight month lows.
Concerns for a contagion from Greece are still looming large despite government assurances. Investors are fretting about the extent of the bailout. The $140 billion aid package for Greece is the biggest international rescue ever, but if the contagion spreads to envelop other debt-ridden countries, the bill could mount.
Photo: Rajanish Kakade/AP
Unless more sovereign ratings are downgraded and there is real proof of contagion, the crisis is more or less discounted. Having said that, I do not intend to imply that global markets have bottomed out because investor sentiment has been so badly dented that it would take time and a lot of heart for investors to overcome the pain of five harrowing days and come back to the markets.
Investors would wait for any move by the European Central Bank to support Greece and other debt-laden euro zone countries. They would also focus on a speech by Federal Reserve chairman Ben Bernanke, who would likely try to soothe investors.
Investor sentiment will also get a bit of a boost from US President Barack Obama’s emphasis on US support for a strong policy response to Europe’s financial situation.
Among economic indicators, April retail sales data scheduled for release on Friday would be the focus of attention for signs of more strength in the US economy. Expectations of these numbers are muted after many chain stores posted below-par sales figures. April industrial production data and the University of Michigan’s May consumer sentiment indicator, also due on Friday, will be watched closely.
In India, the markets would take their cues from global bourses. A repeat of last week’s sporadic bouts of bargain buying at lower levels would prevent a panic-like situation.
Technically, the markets are still in a downbeat phase and may shed more weight before bouncing back. The fact that trading volumes on Friday were sharply higher than the average volume of the last seven days indicates that the down phase is not over yet.
The Bombay Stock Exchange’s Sensex, on its way down, has its first support at 16,667 points; this is an important support level as a decline below this would mean more drops.
The next meaningful support would come at 16,448 points with strong support seen at 16,210.
On its way up, the Sensex would find its first resistance at 16,872 points, followed by 16,967 and 17,141 points.
In terms of the S&P CNX Nifty, support is likely at 4,951 points, 4,912 points and 4,810 points. It will face resistance at 5,067 points, 5,112 points and 5,176 points on its way up.
Among individual stocks, this week ACC Ltd, Jindal Steel and Power Ltd and JSW Steel Ltd may do better than the aggregate market and are showing signs of bottoming out.
ACC, at its last close of Rs861.35, has a target of Rs878 and a stop-loss of Rs845. Jindal Steel and Power, at its last close of Rs649.30, has a target of Rs668 and a stop-loss of Rs624 while JSW Steel, at Rs1,121, has a target of Rs1,149 and a stop-loss of Rs1,091.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org