Stock markets are witnessing a paradoxical situation globally. While mergers and acquisitions are increasing on the one hand, there are worries of a double-dip recession on the other, following data that suggests the US economy is once again slowing.
Another paradox relates to the earnings season in the US. So far, 97% of the S&P 500 firms have declared their earnings, and around 78% of them have fared better than expected. Nonetheless, consumer-related and economy-related data is pointing down.
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The third paradox is the Wall Street’s fear gauge—the volatility index, which is low despite concerns about the US economy. Had the undercurrents been weak, they should have been reflected in the volatility index. But the markets remain calm.
Clearly, economic indicators have been blown out of proportion. It often surprises me why and how the world’s largest economy shakes so badly on such micro indicators as initial jobless claims, that too when the unemployment rate has been fairly high for a long time.
Moreover, nobody expects the US employment rate to improve over weeks or even months. So why should the weekly data give the world a sinking feeling?
I think investors should focus more on corporate developments and announcements, as they may move the markets once investor sentiment improves.
In India, the investment climate is good as foreign funds are pouring in money, which has led the market to a 30-month high. However, markets have started looking a little tired as higher prices are not being supported by rising volumes, which typically indicates an overbought position. But no big fall is expected right now.
The reasons are partly fundamental and technical, and partly common sense.
Due to the index composition, some major components such as Reliance Industries Ltd (RIL, weightage 9.47%), Oil and Natural Gas Corp. Ltd (ONGC, weightage 8.03%), NTPC Ltd (weightage 4.74%) and Bharat Heavy Electricals Ltd (Bhel, weightage 3.59%) are yet to catch up with the market.
ONGC and RIL are likely to see good gains in the coming weeks. In this situation, a fall will be restricted as these stocks would offer good support to the index. Moreover, continuous liquidity in the market would defy the valuation, and that will also prevent a major fall.
However, markets have now opened a downward risk and some profit booking has started reflecting on the charts. But since the confirmation signal is yet to come, I will wait to see Monday’s trading. If, on Monday, the markets continue their lacklustre trend, chances of profit selling would rise substantially.
For the Nifty, the first resistance is placed at 5,549 points, which is a very crucial. If the Nifty crosses this level with good volumes, then there would be healthy gains and it would aim at the 5,600 level.
But before that, there is a moderate resistance at 5,578. The Nifty will have a tough resistance level at 5,612 points, which would test the strength of the gains. Right now, it looks difficult for the Nifty to cross this level. But if it does so, it could aim for higher levels such as 5,654 points.
On the downside, Nifty has meaningful support at 5,504 points. If it falls below this level with good volumes and stays below, this would be a bearish signal indicating the beginning of a moderate technical correction.
However, a mere touch and bounce from around this level would not alter the outlook of the Nifty. The next support for Nifty is likely to come at 5,450 points, which is also a strong support, and a rock-solid support exists at 5,371 points.
Critical data from the US, such as reports on the housing market—including existing home sales, building permits and new home sales—durable goods orders and the preliminary reading of gross domestic product are due this week. They would weigh heavily on market sentiment, and should be watched closely for broader cues.
Among individual stocks this week, Housing Development and Infrastructure Ltd (HDIL), Bhel and JSW Steel Ltd look good on the charts. HDIL, at its last close of Rs293.80, has a target of Rs302 and stop-loss of Rs283. Bhel, at its last close of Rs2,469.50, has a target of Rs2,512 and stop-loss of Rs2,428. JSW Steel, at its last close of Rs1,138.40, has a target of Rs1,171 and stop-loss of Rs1,102.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org