Fear and uncertainty have gripped stock markets around the globe, with investors fretful about the potential magnitude of the euro zone debt crisis. The confidence crisis among investors took a turn for the worse after Germany’s decision to ban so-called naked short-sales in a range of financial assets. In naked short-selling, a trader sells a financial instrument betting that its price will fall, without first borrowing the instrument or ensuring that it can be borrowed, as in a conventional short-sale.
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The German move came as a surprise not only to investors, but also to other countries in the euro zone. Adding to the fear was German chancellor Angela Merkel’s statement that the “euro was in danger” and her call for a process to ensure “orderly” insolvency of its members. Speculation that other euro zone countries may follow suit and ban short-sales sparked further concern in the markets, which took some comfort when that did not happen by the weekend. Meanwhile, weak economic data in the US, such as a spurt in jobless claims, also disappointed investors.
Euro zone debt fears look set to cloud investor sentiment, although a relief rally is likely on Monday and Tuesday because the markets have been oversold. Investors would also keep a close eye on macroeconomic data scheduled for release this week for more cues on the US economy. The weekly jobless claims data and home sales numbers for April will be under scrutiny for signs of strength or frailty in the US economy.
US treasury secretary Timothy Geithner will stop over briefly in Britain and Germany this week to discuss troubled economic conditions there. Geithner has downplayed the perceived magnitude of the euro zone crisis. Any positive comments or announcements would go a long way in boosting morale on equity markets.
In India, no major economic events are due this week and the markets would look to the West for trading cues. A healthy progress report on the monsoon would serve to shore up investor sentiment.
Technically, the markets are due for a rebound. The rebound is likely to last for two days initially, after which volumes would determine where the index is moving next. If the overall market volumes pick up, any gains could be extended. Waning volumes would be a sign of bearishness.
In terms of the Nifty, the first resistance is seen at 4,980 points, which if crossed would boost sentiment. The next resistance is likely at 5,066, but would be a moderate resistance level only. The next resistance at 5,110 is an important level. If the Nifty closes above this level on good trading volumes, the trend would strengthen. A close above 5,212 could signal an end to bearish sentiment.
On its way down, the Nifty has its first support at 4,841, which is a moderate level. It has strong support at 4,761. A decisive close below this level would mean more bearishness.
Among individual stocks this week, Yes Bank Ltd, Lupin Ltd and Allahabad Bank look good on the charts. Yes Bank, at its last close of Rs265.40, has a target of Rs277 and a stop-loss of Rs254. Lupin, at its last close of Rs1,814, has a target of Rs1,844 and a stop-loss of Rs1,784. Allahabad Bank, at its last close of Rs156.75, has a target of Rs163 and a stop-loss of Rs148.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org