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Improved liquidity may help counter market concerns of a weak monsoon

Improved liquidity may help counter market concerns of a weak monsoon
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First Published: Sun, Sep 06 2009. 11 57 PM IST

Updated: Sun, Sep 06 2009. 11 57 PM IST
After a strong rally, share prices and key indices paused for breath last week. Although the markets fell for the first four days of the week, the declines were not significant and a strong rebound on Friday pared most of the initial losses in a week that was important from the economic perspective.
Although key economic data was largely in line with expectations, the ABN Amro Purchasing Managers’ Index (PMI) for August disappointed. Monthly auto sales for August more than made up for the weak PMI data and cement and steel sales numbers were also surprisingly strong.
Direct tax collection figures for the April-August period were also healthy. Foreign trade figures were weak, but they did not dampen investor sentiment.
Globally, last week was a mixed bag. Some US economic indicators relating to consumer sentiment and jobs in the private sector disappointed, but non-farm payroll data for August spurred optimism. According to the US labour department, the decline in non-farm payrolls for August was the smallest in a year. But the US unemployment rate rose to 9.7%, a 26-year high. Though high unemployment in the US remains a matter of grave concern, the data was on expected lines.
Strong gains on Wall Street at the weekend should have improved global sentiment. The market in China, which was responsible for fanning recent economic concerns, ended the week on a positive note as did Hong Kong and Taiwan. Japan was the worst performer of the week with a loss of around 3.5%.
This week, the markets are likely to start off on a positives note after the firm closing on US markets at the weekend. As far as Indian markets are concerned, improved liquidity may help counter concerns over the fallout of a weak monsoon on the economy.
This view is shared by technical studies as well. Some technical indicators suggest that this week is crucial for the stock markets as indices are very close to decisive resistance levels. A confirming breakout above current levels would be definitely bullish.
The Bombay Stock Exchange’s benchmark index, the Sensex, is likely to test its first resistance at 15,974 points. This is a critical resistance level and a confirmatory close above this on sound volumes would be a bullish signal indicating more gains.
The next resistance level would be 16,232 points, which is only a moderate level and may not threaten momentum. The next resistance level for the Sensex would come at 16,598 points, which would be very crucial and should offer strong resistance to a rising Sensex.
On its way down, the Sensex has its first support at 15,567 points. A break below this level on heavy volumes would signal a weak trend. Though this in itself will not threaten momentum, it would be a warning signal.
The Sensex could then test 15,361 points, which is a very strong and crucial support level. A bounceback from this level would mean the return of bullish sentiment, but a confirmatory fall or close below this support would mean more declines in the immediate term, which may take the Sensex down to 14,800 levels.
In terms of the S&P CNX Nifty, on its way up there is very crucial resistance at 4,743 points, which if breached would be a positive signal and mean more gains. The gains may extend to 4,874, which is a moderate resistance level. If this level goes, the next important resistance would come up at 4,894 points.
On its way down, the Nifty would face its first support at 4,634 points. A fall below this level would be bearish in the immediate term and the next support level would come at 4,573. This is moderate support; stronger support would be at 4,537 points. If Nifty falls below this level, it would indicate more declines.
Among individual stocks this week, Bharat Heavy Electricals Ltd (Bhel), Hindalco Industries Ltd and IVRCL Infrastructures and Projects Ltd look good on the charts.
Bhel, at its last close of Rs2,212.05, has a target of Rs2,249 and a stop-loss of Rs2,171. Hindalco, at its last close of Rs105.20, has a target of Rs111 and a stop-loss of Rs98. IVRCL, at its last close of Rs344.80, has a target of Rs359 and a stop-loss of Rs329.
From my last week’s recommendations, BEML Ltd, State Bank of India and Alstom Projects India Ltd met their targets easily.
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 06 2009. 11 57 PM IST