Markets traded in the range I mentioned in my last column and ended 0.75% higher over the previous week. Interestingly, the S&P CNX Nifty index on the National Stock Exchange touched a high of 5,604.95 points, which was a tad below my target resistance and upper end of the band of 5,612 points. The movement shows that the markets are still not out of the woods and would likely consolidate with a downward bias till this level is not breached convincingly with good volumes.
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Markets could not sustain the upward momentum as there were no positive triggers. Monthly manufacturing performance managers’ index (PMI) number slipped from the previous month, showing some pressure on growth. Weaker monthly auto sales clearly showed the impact of high inflation and tight monetary policy in force. The monsoon hit the southern shore two days in advance, but that also failed to lift spirits.
Global economic indicators remained gloomy last week. Employment data from the US spurred pessimism about the global economic recovery. The US government’s payrolls report showed 54,000 jobs were added in May, the weakest reading since September, while the US unemployment rate rose to 9.1% from 9% in April.
The UK’s service sector grew at its slowest pace for three months in May, stoking worries that the British economy’s sluggish start to the year has persisted into the second quarter. The country’s new construction orders suffered their biggest fall since 1987 in the first three months of 2011.
News from China was not good either. Chinese authorities tightened capital requirements for banks by instructing them to put aside more provisions for some loans.
This move signals that monetary tightening in China is not done yet, and more could be in the offing. These weak sentiments are likely to be carried into the next week as markets across the world have little to cheer about. A lighter week in the US in terms of economic indicators also does not have much to support the markets. However, markets would wait and watch for Chinese foreign trade data to get cues on momentum in the Chinese economy. This data, due on Friday, would guide global market sentiments.
Back home, the government’s shameful actions against yoga guru Baba Ramdev and his supporters, who were on a peaceful protest against corruption, is creating a new political storm. The issue relates to public sentiments, and there could be many twists and turns before the markets open. It would be better to see the markets for some time on Monday before taking a call on the trend.
Technically, the broader trend is showing weakness, therefore, a weak opening on Monday is almost sure. The market is likely to remain in the range unless the Nifty breaks on either side, which means 5,612 points on the upside and 5,248 on the downside. However, political equations may work like a catalyst for the weak trend in the market, which, in extreme cases, could swing the sentiments.
Overall on the downside, the Nifty is likely to test its first support at 5,472 points, which is likely to be a moderate support level. If this support level breaks, the next support level would come at 5,412 points, which would be a crucial support level. Though I do not think this level would be strong enough to withstand any broadbased selling, if it holds, then it would mean some bounce back from this level. However, if this level breaks with heavy selling volumes, then the next meaningful support would come at 5,291 points, which is likely to be a good support level. The support at 5,248 would be the most sought after support level and should be watched closely.
On the upside, the first resistance is likely to come at 52,542, followed by the next important resistance at 5,612 points. A break above this with good volumes, or a close above it, would decide the trend on bourses.
This week ONGC Ltd, HCL Technologies Ltd and ABB Ltd look good on the charts. ONGC, at its last close of Rs 279.95, has resistance at Rs 291, and a stop-loss at Rs 266. HCL Technologies, at its last close of Rs 512.60, has a target of Rs 520, and a stop-loss of Rs 498, while ABB, at its last close of Rs 853.80, has a target of Rs 868, and a stop-loss of Rs 831. But readers must take note of the market situation before considering these individual stocks.
Vipul Verma is chief executive officer, Moneyvistas.com.
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