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Global cues key to drafting investment plans this week

Global cues key to drafting investment plans this week
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First Published: Sun, Mar 22 2009. 09 32 PM IST

Updated: Sun, Mar 22 2009. 09 32 PM IST
It was yet another good week on the bourses with key indices closing over their previous week’s close. Sporadic bouts of profit selling at the higher levels capped the gains and the key indices could not pierce their critical resistance levels but the undertone on the bourses remained positive on the back of rising trading volumes and the return of foreign funds after a long gap.
Indeed, improvement in global sentiments also played a role but worries over the sustainability of positive sentiments remain due to concerns over the long-term inflationary impact of the infusion of $1 trillion (Rs50.1 trillion) in the US economy.
The market lacks triggers and this week is going to be critical globally as the fledgling signs of recovery on the bourses will face its biggest test in the US treasury’s long-delayed bank rescue plan. Details of the plan are expected early next week. This will decide the fate of the markets in the short term. Any disappointment over this plan could trigger a sharp sell-off while a well-designed plan could serve as a catalyst for further gains. Apart from the bank rescue plan, US mortgage data—which includes existing home sales in February and new home sales—will also be watched very carefully.
Data on February durable goods orders on Wednesday and the final reading on fourth-quarter gross domestic product on Thursday are likely to be weak and may spur weakness due to poor numbers. Overall, there is a lot to look forward to and investors should focus more on global cues to draft their strategy.
On the domestic front, apart from the weekly inflation data on Thursday, the bank loan growth data on Friday would also be watched for cues on the economy. However, they are unlikely to have any major impact on the bourses.
Triggers are lacking
Technically, the markets are in a testing phase as no clear trend is emerging currently. Since lower levels are attracting good volumes and bargain hunting is limiting the losses, technically the chances of a big sell-off are limited. The market lacks triggers and the northward momentum does not have any conviction.
The Bombay Stock Exchange’s benchmark index, the Sensex, continues to be at a strong resistance level between 9,098 and 9,140 points. This is an important level and unless the Sensex closes above it with good trading volumes, the momentum on the bourses would continue to remain weak. If the Sensex crosses this level with good volumes and closes above it comfortably, this would mean a change of sentiments and momentum would start building. The next resistance will be at 9,297 points but this may not be a critical level.
If the Sensex can cross this hurdle, the next resistance awaits at 9,468 points. A close over this level would clear lots of doubts about the strength of the northward momentum. The most critical resistance level will be at 9,724 points. It’s not a technical resistance level but it holds its prominence due to a recent high level for the Sensex.
A breakout above this level with rising volumes would make a strong case for the Sensex entering bullish orbit with the targets shifting to as high as 12,000 points in months to come. What needs to be watched at this level is not the levels but the volumes. If volumes grow in sync with the rising prices, it will boost the rally on the bourses.
At the current levels, it’s important to keep a watch on the support levels as the weakness clearly overhangs the bourses. On its way down, the Sensex could test its first support at 8,869 points—a moderate support level. If this level is broken, the next support would come at 8,628 points, which would again be a moderate support level. If the Sensex pierces this level too, the next meaningful support would come only at 8,345 points. This is a very strong support level and unless something major goes wrong, it is most likely that this will be the bottom for now.
However, if there is a fundamental shift in the economy, then there could be a sharp fall on the bourses following this level.?In?terms?of S&P CNX Nifty, the first resistance level at 2,840 points is an important one. A comfortable close above this level would greatly improve the sentiments and the next resistance would be seen at 2,887 points, followed by a very important resistance level at 2,967 points.
The bull orbit
This would be the testing phase of the market’s strength and if the Nifty manages to close above this level with high volumes, then the market would enter the bull orbit. If it fails, there could be a consolidation for the next two weeks.
On its way down, there is immediate support at 2,771 points, which is a moderate but important level. Any fall below this may signal weakness in the short term as the next meaningful support would shift to 2,674-2,728 points. This would be an important level and may change the?short-term?outlook?of?the Nifty.
A bounce back from the lower end of the band would mean recovery and some consolidation, before the Nifty takes its next course. A close below this level signifies bearish sentiment and the market could go below its recent low levels. The best strategy at this point would be to wait and watch, and look for signs of revival before entering the market.
Among individual stocks, ABB Ltd, Infosys Technologies Ltd and Reliance Infrastructure Ltd look good on charts. ABB at its last close of Rs369.85 has a target of Rs384 and a stop-loss of Rs349. Infosys Technologies at its last close of Rs1,296.20 has a target of Rs1,322 and a stop-loss of Rs1,251. Reliance Infra at its last close of Rs483.10 has a target of Rs495 and a stop-loss of Rs464.
From the previous week’s recommendations, HDFC Bank Ltd touched a high of Rs863 and met its target of Rs852 comfortably. Titan Industries Ltd hit a high of Rs759, which was well above its target of Rs741. Shree Renuka Sugars Ltd too met its target of Rs83.
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 22 2009. 09 32 PM IST