US data to shape market sentiment; rally at home

US data to shape market sentiment; rally at home
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First Published: Mon, Aug 24 2009. 01 33 AM IST

Updated: Mon, Aug 24 2009. 01 33 AM IST
I stand by what I wrote in my last column and maintain that the markets are on their way to scaling new yearly highs.
Last week, trading resumed on a negative note as share prices and key indices plunged in response to a sell-off on Chinese bourses. However, they bounced back from early lows and key indices ended just moderately lower at the end of the week. I am hopeful that beginning this week, market perception would turn positive.
Renewed optimism on global markets following positive economic data in the US and Europe, and upbeat remarks by US Federal Reserve chief Ben Bernanke on the state of the US economy led to a rally on Friday in the US and European markets. The return of some stability to Chinese markets after the sell-off at the beginning of the week also brought a degree of cheer.
More cues about the strength of the US economy would be available this week with critical data such as new home sales, due on Wednesday. On Friday, Wall Street got more confirmation that the economy is on the mend with a report showing existing home sales in July rose 7.2%, the fastest pace in nearly two years and a sign that housing is pulling out of a three-year slump.
The data, combined with stronger-than-expected second-quarter earnings, pushed key US indices to the highest levels since October. This week’s report on new home sales for July is likely to get more scrutiny than usual from investors seeking proof that the rally has been driven by more than hope. Other major indicators on this week’s economic calendar in the US include consumer confidence, durable goods orders, gross domestic product, personal income and consumption, and consumer sentiment. Consumer confidence data for August will be released on Tuesday and would be the first critical indicator for global markets.
Positive trend: A man walks past the Bombay Stock Exchange building in Mumbai. Markets are expected to start off on a positive note and the rally that began on Friday may continue on Monday too. Prashanth Vishwanathan / Bloomberg
Back home, the markets are expected to start off on a positive note and the gains of Friday are set to be extended on Monday (probability: 90%). Technically, in terms of the Sensex on the Bombay Stock Exchange (BSE), a rising index is likely to meet its first resistance between 15,502 and 15,567 points (current close: 15,240.83). This is a critical resistance level and could see moderate profit-selling and even some consolidation (probability: 75%). However, if this level goes, the next resistance level would come at 15,691 points, which is expected to be a moderate resistance level and may not pose a serious threat to a rising Sensex. This level could go easily, and the next and the most critical resistance level would then come at 15,974 points. This level would decide the short-term course of the market. If this level is breached on good volumes, it would mean a strengthening of the bull run and more gains in coming days. However, any pull-back from these levels and resistance would not be a bad sign; it would only mean another leg of a rally in the making. The next resistance level would then shift to 16,243 points.
I do not see a downside building at current levels and expect profit-selling at around the 15,502-15,567 range. If the market for any reason falls from current levels, the first support would come at 15,123 points, a moderate but important level. If this level goes, it would mean some more profit-selling in the immediate term, which would push the Sensex down to 14,843 levels. A falling Sensex would see good support at this level. However, if this level also goes, then there is a strong support at 14,701 points, which would decide the course of the market in the short term. A fall below this level would mean the end of positive sentiment in the short term and signal a further decline.
Coming to the S&P CNX Nifty, the 50-stock barometer of the National Stock Exchange is likely to extend the rally and on its way up likely to meet its first resistance at 4,582 points. If the Nifty moves above this level, the next resistance level would come at 4,629 points, which is an important and critical resistance level. The Nifty would most likely witness strong resistance at this level, which could also see some profit-selling. The selling would be a welcome sign and would only strengthen the positive trend; after a brief fall, it would set the next resistance at 4,719 points. This would be the most important level and would set the tone for the short-term outlook of the Nifty. A comfortable close above this level would be a very positive sign, and the next resistance level would then shift to 4,808 points.
On its way down, the Nifty would test its first support at 4,491 points, a moderate but critical level. A fall below this on good volumes would signal weakness and could push Nifty down to 4,401 points. This would be a good support level, but may not be strong enough to stop the fall; in that case, there would be critical and a strong support at 4,354 points, which would decide the short-term outlook of the Nifty. A fall below this level would be a bearish sign.
Among individual stocks, this week, Aptech Ltd, Housing Development and Infrastructure Ltd (HDIL) and State Bank of India (SBI) look good on the charts. Aptech, at its last close of Rs215.25, has a target of Rs224 and a stop-loss of Rs203. HDIL, at its last close of Rs278.65, has a target of Rs291 and a stop-loss of Rs264. SBI, at its last close of Rs1,775.85, has a target of Rs1,812 and a stop-loss of Rs1,737.
From the previous week’s recommendations, Larsen and Toubro Ltd and Titan Industries Ltd met their targets, while Triveni Engineering and Industries Ltd missed it, but still remains a valid recommendation for this week.
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: Mon, Aug 24 2009. 01 33 AM IST