The bourses continued their roller coaster ride last week as fears of recession resurfaced, following a series of weak economic indicators in the US and crisis of confidence in Europe, threatening the stability of their financial systems. Though there was not much related to India, bourses closed the week down around 5.5% on weak global cues.
Germany led the losers last week as its benchmark Xetra DAX fell around 8.63%. Germany, which is the strongest economy in euro zone, reported significantly weaker than expected gross domestic product (GDP) growth of 0.1%. This rattled investors. Moreover, disappointment over the much awaited meeting of French President Nicolas Sarkozy and German Chancellor Angela Merkel on euro zone also weighed on sentiments. Last, but not the least, Goldman Sachs Group Inc. cut estimates for US growth in the second half of this year to 1-1.5%, as it sees the economy “losing further momentum”. It was the firm’s third cut in GDP estimates in August. Goldman Sachs now expects growth of 1% in the third quarter and 1.5% in the fourth—both down from 2% previously.
Though the volatility is likely to continue, there are lots of things to look forward to this week. Markets will look at Federal Reserve chairman Ben Bernanke’s speech on 26 August for hints on how policymakers plan to address the recent turmoil. Since this meeting will conclude towards the weekend, the suspense over the meeting would keep investor sentiments on tenterhooks.
Bravehearts say there might be a third quantitative easing (QE3) package in the offing. However, most analysts say there may not be any significant announcement as the Fed will keep a close watch on the financial system in the euro zone and may swing into action if cracks appear. Markets will also watch out for Bank of Japan’s intervention in the forex market as dollar fell to record lows against yen. Over the weekend, news appeared in Japanese media that Japan is considering intervening in the currency market again to stem further yen gains. This may not be significant from the Indian market’s perspective; however, since it may affect global commodity prices, markets will watch out for Japanese action. A number of economic indicators, including new home sales data, durable goods orders, consumer sentiment and gross domestic product, will be instrumental in giving direction to the market.
Back home, though, there is not much on the economic platter, but markets will continue to trade volatile due to the expiry of August derivative contracts on Thursday. As markets are beaten down considerably, and as lots of short positions have been added last week, purely from trading perspective, markets may rebound on short covering and some bargain buying by funds and traders.
Technically, the markets are now in oversold zone and are giving strong signals of pull back in coming sessions. Many front line stocks have given bottoming out signals in the immediate term, which is positive. However, since the global turmoil is superseding the analysis, I will suggest investors to track the news related to US and Europe before taking a call.
Technically, the Nifty on its way up could find its first resistance at 4,891, which is a moderate resistance. If the Nifty breaks past this with convincing volume, it would improve the outlook of the market as the next resistance would come at 4,938 points. This would be an important resistance to watch as any close above this would only brighten the outlook in the immediate term. If the Nifty closes above this with good volumes, the next resistance would come at 5,018, which would be instrumental in deciding the short term view of the market. However, above this, the next resistance would be 5,131, with a very solid resistance at 5,191.
On its way down, the first support for the market would come at 4,791, which is moderate support. The next would come at 4,712, which is a very strong support, and looks like a short-term bottom for the market. Any significantly strong close below this level would be very bearish.
Among individual stocks this week, Kotak Mahindra Bank Ltd, Dish India TV Ltd and Ranbaxy Laboratories Ltd look good on charts. Kotak Mahindra Bank, at its last close of Rs 433.40, has a target of Rs 445, and a stop-loss of Rs 418. Dish TV, at its last close of Rs 81.65, has a target of Rs 85, and a stop-loss of Rs 77. Ranbaxy, at its last close of Rs 477.30, has a target of Rs 486, and a stop-loss of Rs 462.
From my previous week’s recommendations, ICICI Bank Ltd and JSW Steel Ltd hit their targets, while ABB Ltd triggered its stop-loss.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at firstname.lastname@example.org