Caution ahead of the earnings season and anxiety among investors over crucial US data on non-farm payrolls caused the markets to consolidate in the latter part of last week.
The markets had been expecting an improvement in the US data as a pointer to a continued recovery in the world’s biggest economy. Had the data fallen slightly below expectations, it would have reinforced the opinion of market participants that the US Federal Reserve would continue to hold interest rates steady to prop up the economic recovery.
But the data fell way below expectations, showing that the US economy had unexpectedly shed 85,000 jobs in December. A silver lining was provided by a revision of the November payrolls report to show a gain in jobs. Taken together, the data indicated that the US economy remains on the track of growth and US interest rates would remain low. The weak December data led to a fall in the dollar index, which measures the US currency against that of six trading partners.
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In India, the flow of economic data has been positive and after robust figures for monthly auto sales and cement dispatches, the release of the HSBC Markit PMI (purchasing managers’ index) for December boosted investor sentiment. The PMI bettered expectations and reinforced hope that the economic recovery in India remains on a firm footing.
Going forward, company earnings will take the centrestage. In the US, the earnings season would be kicked off by aluminium producer Alcoa Inc., which would report its numbers after the closing bell on Monday. Other US companies scheduled to report earnings this week include Intel Corp. on Thursday and JPMorgan Chase & Co. on Friday.
Cues to watch: Infosys Technologies posts its Q3 earnings on Tuesday. Hemant Mishra / Mint
Back home, the earnings season will begin with Infosys Technologies Ltd reporting its third-quarter results on Tuesday. Infosys’ earnings and revenue guidance would decide the trend of the markets, which use the company as a bellwether for the information technology industry. Some other key companies reporting earnings this week are Bajaj Auto Ltd, Bajaj Holdings and Investment Ltd, Rural Electrification Corp. Ltd, Jindal Saw Ltd, Shree Renuka Sugars Ltd, Tata Consultancy Services Ltd, Axis Bank Ltd, HDFC Bank Ltd and Ultratech Cement Ltd.
Among economic indicators this week, industrial output and manufacturing data for November would be released and closely scrutinized by the markets. The data would be released around noon on Tuesday and could set the direction for the local markets. Other economic data like food inflation and bank loan growth would also be watched in the week.
Technically, the markets are in a consolidation phase that may continue longer before a breakout. On its way up, the Sensex is likely to test its first resistance at 17,661 points. This resistance is likely to be a minor one and would not pose a serious threat to the rising Sensex. If the level is passed, the next resistance would come at 17,744 points. This would be an important resistance and if overcome, there would be a short rally. The next resistance would be at 18,078, followed by 18,322 points, which is likely to lead to some profit selling.
On its way down, the Sensex would find its first support at 17,353 points. This would be a decisive support and if the Sensex closes below this level, there would be further declines, and the undertone would turn negative.
In terms of the S&P CNX Nifty, the first resistance is at 5,276 points; this is an important level and if this goes, there would be strong gains. The next immediate resistance would come at 5,313 points. If the Nifty breaks past this level, the next resistance will come at 5,384 points. On its way down, the Nifty would test its first support at 5,179 points and a close below this level would be considered negative.
Among individual stocks this week, Jindal Steel and Power Ltd, Reliance Media World Ltd and ACC Ltd look good on the charts. Jindal Steel & Power, at its last close of Rs711.50, has a target of Rs743 and stop-loss of Rs696. Reliance Media, at its last close of Rs279.20, has a target of Rs295 and stop-loss of Rs270, while ACC, at its last close of Rs911.60, has a target of Rs937 and stop-loss of Rs896. From my previous week’s recommendations, all the stocks overshot their targets by a wide margin.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at email@example.com