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Earnings will continue to dominate sentiment

Earnings will continue to dominate sentiment
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First Published: Sun, Jul 19 2009. 09 46 PM IST

Updated: Sun, Jul 19 2009. 09 46 PM IST
Driven by strong liquidity, key indices and stock prices witnessed a fresh rally as funds picked up beaten-down stocks on hopes of a recovery in the Indian economy. An improving monsoon, better-than-expected earnings and strong global cues also added to the upbeat sentiment. Above all, positive signals from the government on economic reforms and disinvestment marked a turning point for the market.
The role of the monsoon was very significant last week in propping up investor morale. The government prepared a contingency plan to take on a deficient monsoon even as rains picked up across the country, giving a shot in the arm to a market that was gearing up to face a drought.
Globally, the trend remained positive on a string of positive economic data and better-than-expected earnings. Goldman Sachs, Intel Corp.and IBM Corp. were among the many firms that surprised the markets with their earnings. The earnings are getting clearly reflected on the bourses, as the US market gained roughly 7% last week. Earnings will continue to dominate sentiment this week as around 143 Standard and Poor’s 500 companies will announce their results. If these numbers continue to impress analysts and the markets, then the rally on global bourses may gather momentum.
However, any negative surprise would become a reason for a correction on global bourses. At the macro level, all eyes would be on US Federal Reserve chairman Ben Bernanke this week for his comments on the state of the US economy in his semi-annual testimony. Positive signals from Bernanke would be seen as underpinning indicators of an economic recovery. This week, existing home sales for the month of June and initial jobless claims would be watched very closely for more cues on the US economy.
Back home, there are no major economic indicators due this week and corporate earnings and the monsoon would continue to dominate sentiment. So far, earnings have been very encouraging and suggest that the worst may be over. However, with the announcement of company results from a broader section of the industry, more will be revealed.
Technically, the rally on the bourses is headed for its major resistance, which would decide the fate of the current rally. On the Bombay Stock Exchange, the rising Sensex would test its first resistance at 15,032 points. This is an important resistance level and if it goes, it would give way to more gains as the next resistance would then come up at 15,169 points.
However, this would be a moderate resistance level only. If this level is also crossed then the market could gain further and there would be a very strong resistance at 15,614 points. This resistance would be the most significant level to watch because if this goes, then the Sensex would be poised for new highs and would aim for 16,000 points.
On the downside, the Sensex would see the first meaningful support coming at 14,492 points, following which there would be next important supports at 14,388 points and 14,166 points, which would be very solid supports.
For the S&P CNX Nifty, the first resistance will be in the 4,437-4,488 points range. This would be a very important band and would help in determining the trend on the bourses. If the Nifty crosses this band with high volumes, there would be further gains and the next important resistance would come up at 4,550 points. However, this would be a moderate resistance level and would not offer any significant threat to the northward momentum. But following this level, there would be very strong resistance at 4,697 points, which would be crucial for the trend. If this level goes, then 4,800 points could be a reality soon.
On its way down, the Nifty has support at 4,258 points, which is a strong level. However, if this level goes, the subsequent support level would come at 4,160 and 4,044 points.
Among individual stocks, Yes Bank Ltd, Welspun Gujarat Stahl Rohren Ltd and AlstomProjects India Ltd look good on the charts. Yes Bank at its last close of Rs144.45 has a target of Rs156 and a stop-loss of Rs132. Welspun Gujarat at its last close of Rs195.80 has a target of Rs211 and a stop-loss of Rs181. Alstom Projects at its last close of Rs489.50 has a target of Rs505 and a stop-loss of Rs473.
From the previous week’s recommendations, Cipla Ltd, Federal Bank Ltd and Punj Lloyd Ltd all met their targets very easily.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Jul 19 2009. 09 46 PM IST