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Investors to watch for new market boosters

Investors to watch for new market boosters
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First Published: Sun, Mar 15 2009. 09 50 PM IST

Updated: Sun, Mar 15 2009. 09 50 PM IST
The old saying—It’s darkest before dawn— proved itself last week. After weeks of bearish sentiment, equities bounced back across the global bourses on improving sentiment and on hopes of some stability now coming to US financial systems. Though it was too early to say anything about the US economy or the financial system, emergence of fresh buying interest in equities led to hopes on bourses that we have seen the darkest for now.
US stocks scored their best week since November following a string of positive indicators with the Dow Jones rising 9%, the S&P 500 gaining 10.7% and the Nasdaq advancing 10.6%. The S&P index marked its third best week since World War II. The world too rejoiced the rally in US as the Sensex ended the week up 5.17%, Nikkei up 5.52%, Hang Seng up 5.07%, and CAC 40 (France) up 6.75%.
Looking up: A 13 March picture of a trader at the New York Stock Exchange. US stocks scored their best week since November following a string of positive indicators with the Dow Jones rising 9%. Brendan McDermid / Reuters
Gains on Indian bourses were credible given that it was a holiday-shortened week and, at the close, sentiment remained upbeat.
Caution, however, continued to lurk on concerns over the stability of the ongoing momentum. This is well reflected in average volumes on the bourses during the last week. Moreover, the breadth of the market despite such heavy gains was not very positive.
The reason for this scenario is probably the lack of active participation from market players as the stock markets have been a case of one-step forward, two steps backwards, with sharp profit-selling capping rallies. However, this does not mean that the trend on the bourses remains weak as any further gains would bring the Sensex back to the levels that are critical for the short-term outlook.
Since there are no major economic data due this week, the markets would take leads from the US, as the world’s largest economy has a very busy economic calendar this week that investors would do well to track, as it would steer sentiments globally.
This week, investors will watch for any new methods the Federal Open Market Committee may use to bolster the weak economy as the Fed funds rate target is already near zero. Any plans by the Fed to buy long-term US treasurys would help markets immensely as the Fed is likely to hold the rates steady.
A string of data on inflation, manufacturing, housing and the labour market is expected to show a gloomy picture of the economy. Any positive surprises could actually work as a catalyst on bourses globally as it would cement the view that worst is getting over.
Back home, the gains on the bourses are likely to strengthen on hopes of some Reserve Bank of India action in sight by the beginning of April as with inflation falling to very low levels, there is further scope for rate cuts.
Technically, there are signs of buoyancy on the bourses as the key indices are inching towards their critical resistance levels. A rising Sensex would come across its first resistance level at 8,996 points, which would be a moderate resistance level. If the Sensex manages to close above this level, then the next resistance level would come at 9,107 points, which would be an important level to watch as a close above this level would mean more gains.
The next resistance level for the rising Sensex would come at 9,317 points, which would be a very critical resistance level. If the Sensex closes above this level with significantly higher volumes, then the Sensex would enter a short-term bullish zone with higher levels in sight.
However, if it drops from current levels, the probability of which is low, then it would test its first support at 8,630 points, which is a moderate support level, but its breach would mean a further fall on the bourses as the next support would then shift to the 8,498-8,452 points band. This would be a critical support level, as a close below this level would mean the end of positive sentiments.
The key to the trend here would be volumes. If volumes pick up with falling prices, this would a confirmatory sign of a fall on the bourses and the decisive support for the ongoing momentum would come at 8,348 points. If the Sensex closes below this level with more falling volumes, then it would be the end of the current rally.
Coming to the S&P CNX Nifty, the momentum on the bourses is looking strong and the Nifty looks like it could carry on the northward momentum. For the Nifty, though there is a moderate but important resistance at 2,760 points, a breach of which would help in strengthening the trend. However, it has a very critical resistance at 2,798 points, which if broken would boost the sentiments considerably and there would be chances of short, sharp rally of nearly 80 points, as the next resistance would then shift to 2,887 points. This, too, is an important resistance level and a close above it with heavy volumes would only strengthen the trend, with a final resistance coming around 2,969 points. If the Nifty manages to close above this level, then it would be firmly placed in the short-term bull orbit.
On its way down, the immediate support for the Nifty would come at 2,654 points, which is a moderate support. Following this level, there would be important support levels at 2,625 and 2,557 points. A close below the latter support level would mean the end of positive sentiment.
Among individual stocks, this week HDFC Bank Ltd, Titan Industries Ltd and Shree Renuka Sugars Ltd look good on the charts. HDFC Bank at its last close of Rs834.25 has a target of Rs852 and a stop-loss of Rs801. Titan Industries at its last close of Rs720.80 has a target of Rs741 and a stop-loss of Rs698, while Shree Renuka Sugars at its last close of Rs78.45 has a target of Rs83 and a stop-loss of Rs72.
From the previous week’s recommendations, Reliance Communications Ltd met its target of Rs148. Larsen and Toubro Ltd touched a high of Rs619, which was well above its target of Rs595. Sterlite Industries (India) Ltd gained around 16% during the week and needless to say it met its target very 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, Mar 15 2009. 09 50 PM IST