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If data shows a healthy trend, it may trigger gains

If data shows a healthy trend, it may trigger gains
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First Published: Sun, Jun 07 2009. 09 25 PM IST

Updated: Sun, Jun 07 2009. 09 25 PM IST
Last week was yet another good week on the bourses as the key indices closed higher for the 13th consecutive week. But as expected, the markets showed enough signs of tiring as equities and key indices witnessed regular intraday sell-offs by funds and traders. However, too much liquidity chasing Indian equities restricted losses on the bourses every time the markets fell and ultimately, key indices ended the week with minor gains.
Fundamentally, the situation seems to have been improving as the basic domestic economic indicators have started showing signs of recovery. With better-than-expected gross domestic product and infrastructure growth, it is now clear that the Indian economy is recovering from the slowdown. The latest figures of tax collections add to the sentiment that the worst is over.
Globally, the situation was rather more impressive as the US economy churned out some really good economic numbers. The labour department’s report on Friday showed that employers cut 345,000 jobs in May—substantially less than what analysts had forecast—but the US unemployment rate hit 9.4%, its highest since 1983. This was not unexpected. But lowerthan-expected cut in unemployment numbers was strong evidence that the US economy is coming out of the woods.
Pre-emptive measures: General Motors Corp. CEO Fritz Henderson in New York, US, on 1 June. Last week’s biggest event—bankruptcy filing by GM—went rather peacefully as investors had already braced for it. Andrew Harrer / Bloomberg
Last week’s biggest event—the filing of bankruptcy by General Motors Corp.—went rather peacefully as investors had already braced for it.
In the rest of the world, Europe and China also produced better-than-expected economic numbers.
This week is again going to be important as regulators in the US are expected to name the first round of banks allowed to repay bailout funds. This is expected to be a big positive for the US economy, which could feed the global economies with optimism.
This week investors also will sift through a government report on May retail sales and data on consumer sentiment for an idea of the mindset of consumers, whose spending accounts for two-thirds of the US economic activity. If these numbers continue to be good, it would boost sentiments on US bourses and would spur optimism about recovery in the US economy.
However, all is not perfect for the US and the world as sharp spurt in oil prices, which are now close to $70 (Rs3,297) a barrel, and higher US bond yields are major stumbling blocks. If both these parameters remain unchecked, it might invoke monetary measures to check inflation, which would hamper economic growth.
This week will be important for the Indian economy as well. Other than the regular information on the rate of inflation on Thursday, critical economic data such as industrial output data, manufacturing data and cumulative industrial data for the month of April are due on Friday. If the numbers show a healthy trend, it would boost the markets and may trigger gains.
Technically, the markets are showing some signs of tiredness and though there is still no confirmed sell signal, the rising profit selling on higher levels and higher selling volumes indicate signs of peaking out. Unless the volumes pick up on the buying side, the chances are that Indian bourses might see some profit selling towards the middle of the week.
Technically, the Sensex has its first resistance at 15,137 points and if this resistance is breached, the next resistance would come at 15,297 points, which is likely to be a strong resistance. But if it is broken, it would be a positive signal and would mean more gains as the Sensex could then move up to 15,512 points, which would again be a tough resistance. However, there would be a very strong resistance at 15,629 points.
On its way down, the Sensex would test its first support at 15,032 points, which is a moderate support. If breached, the next support will come at 14,908 points. However, there is strong support at 14,601 points, which if broken would mean a bearish trend in the short term.
For the S&P CNX Nifty, the first resistance is placed in the band of 4,612-4,637 points, which is a moderate resistance, followed by strong resistance at 4,694 points. If the Nifty goes past this level, the next resistance will come at 4,754 points.
On it way down, the first support is expected at 4,544 points, which is a moderate support in strength but critical in implication as a breach would mean a further fall with support slipping to 4,446 points. If Nifty falls below this level, there would be firm bearish sentiments.
Among individual stocks, Oil and Natural Gas Corp. Ltd,or ONGC Ltd ABG Shipyard Ltd, and Jindal Steel and Power Ltd look good on the charts. ONGC at its last close of Rs1,181.80 has a target of Rs1,220 and a stop-loss of Rs1,142. ABG Shipyard at its last close of Rs227.35 has a target of Rs242 and a stop-loss of Rs214. Jindal Steel and Power at its last close of Rs2,278.05 has a target of Rs2,345 and a stop-loss of Rs2,220.
From last week’s recommendations, Reliance Communications Ltd touched a high of Rs352.70, which was well above its target of Rs318. Jindal Steel and Power touched a high of Rs2,364.90, which was well above its target of Rs2,174 and is still a part of this week’s recommendations. Bank of Baroda Ltd touched a high of Rs447, but fell later and triggered its stop-loss.
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, Jun 07 2009. 09 25 PM IST