In a holiday-shortened week, equities added more gains, stretching their winning streak to eight weeks. Strong global cues and buying by foreign funds led the momentum as key indices touched their 2009 highs last week, when the stock markets were open only for three days.
There was no fundamental change in the economy to justify the gains, but strong liquidity and a feel-good factor about the global economy—particularly the US— pushed share prices higher.
Globally, even concerns such as swine flu and its likely impact on economies and the flat-to-weak earnings outlook for major companies did not deter investors.
This week would be critical from a fundamental perspective because the results of the US “stress test” of the banking system would be revealed on Thursday. These results could be the trigger for the next leg of the rally, or the end of the current one.
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The April employment figures, to be released on Friday, would also weigh heavily on the US economic outlook. The stress tests are a government exercise to help regulators gauge the health of the 19 largest US banks with the intention of determining their need for any additional capital in a range of economic scenarios.
Back home, the undertone remains positive despite the possibility of a hung Parliament emerging from the 15th general election. Even the forecast of a slightly below-normal monsoon could not upset the trend, indicating that the markets are set to catch up with the rest of the world in a strong opening on Monday and sustain the gains in the initial part of the week.
ABN Amro’s April Purchasing Managers’ Index, or PMI, is scheduled to be released on Monday, and will be watched closely for any signs of an improvement in manufacturing activity. India’s fiscal deficit for the month of March will also be scrutinized for insights on the economy. Figures related to bank loan growth will be released on 8 May.
Technically, the market is signalling further gains. On its way up, the Sensex is likely to test its resistance at 11,494 points, a minor level. If this resistance goes, the next level will be at 11,786, which would be a strong level, but may not be strong enough to threaten the northward momentum. There would be trend-deciding resistance at 12,014 points, which would be the termination point of this rally. There is a small chance of the Sensex touching its ultimate resistance at 12,269 points if the momentum pushed the index past 12,014 points. Technically, the resistance at 12,014 remains very strong. According to my study of the Sensex, this would be the most important level, which may start a true technical correction on the markets.
On its way down, the Sensex has its first support at 11,339 points, which is a minor support, followed by 11,068 points. This is strong support, but if a decline comes on the back of heavy trading volume, this support level may not hold. The next support level would slip to 10,913 points. There is strong support at 10,719 points.
In terms of the S&P CNX Nifty, the first resistance is placed at 3,516 points, which is a minor resistance. This would be followed by the next resistance at 3,569 points, which is a stronger level, but will not be able to threaten a northward momentum. There is very strong resistance at 3,663 points, which could decide the trend in the short term and end the current rally. However, technically, inno case is the Nifty expected to cross the resistance at 3,716 points, which as of now seems to be the final termination point.
On its way down, the Nifty would test its first support at 3,416 points, which is a minor resistance level, to be followed by another important support at 3,348 points. There is rock-solid support at 3,301 points in case the Nifty breaches its support at 3,348 points.
Among individual stocks, this week Maruti Suzuki India Ltd, Bharat Heavy Electricals Ltd (Bhel) and UltraTech Cement Ltd look good on the charts. Maruti Suzuki, at its last close of Rs814, has a target of Rs838 and a stop-loss of Rs789. Bhel, at its last close of Rs1,655.70, has a target of Rs1,698 and a stop-loss of Rs1,612. UltraTech Cement, at its last close of Rs570.20, has a target of Rs596 and a stop-loss of Rs551.
From the previous week’s recommendations, Tata Tea Ltd touched a high of Rs709 and met its target. Federal Bank Ltd hit a high of Rs197.35 and met its target of Rs188 very easily. Oil and Natural Gas Corp. Ltd touched a high of Rs870, but missed its target of Rs885 and continues to be a recommendation for this week.
Vipul Verma is CEO Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org