Much on expected lines, key indices—the Bombay Stock Exchange’s Sensex and the S&P CNX Nifty—touched their peaks and then headed down on a technical correction.
In my last column, I had mentioned clearly that the Sensex would peak at 12,269 points, while the S&P CNX Nifty would not cross 3,716 points. The Sensex last week touched a high of 12,272.1 points, while the Nifty touched a high of 3,717.05 points. Overall, it was a very good week both technically and fundamentally.
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As far as the domestic economy is concerned, there was not much to talk about except monthly auto and cement sales, which fared slightly better than expected. Inflation, for all practical purposes, has lost its relevance. However, better-than-expected corporate results, positive news flow, persistent buying by foreign funds and a strong rupee kept the sentiments positive.
Globally, sentiments got a boost from the US bank stress test results that were better than expected and uplifted sentiments in bank stocks. Better-than-expected employment data also added to market comfort and confidence.
This week is going to be important from the economic data point of view. In the US, April retail sales and March business inventories, due on Wednesday, would be the most important data this week. Other critical data would be readings on March international trade on Tuesday; weekly jobless claims and the April Producer Price Index on Thursday; followed by Friday’s May consumer sentiment data and April reports on industrial production and the Consumer Price Index. These numbers would weigh on market sentiments.
This week would also be important as the Dow is now inching close to turning positive as far as YTD (year-to-date) is concerned. It is only 2.3% away from the high level of 2009. Moreover, the S&P 500 is now less than 30 points away from breaking above its 200-day moving average, which if it does, would be a big sentiment booster.
But on the domestic turf, uncertainty would be at its peak as the election season winds up. Although the election results are due on Saturday, as the week would progress, political uncertainty would grip the bourses.
Economically also,?this week is important as on Tuesday, India’s industrial output data for the month of March would be released. Also, cumulative industrial and manufacturing output for March will be released on the same day.
The hopes are that this data would be better compared with the previous month on improved economic scenario as reflected by the ABN Amro PMI. If these numbers fare better than market expectations, there could be a short rally. However, any shock could trigger selling.
Technically, markets could rise on Monday—first, due to improved global sentiments and second, due to positive technical parameters. Classical technical studies suggest that Friday’s sharp fall and two days of consolidation before that was a form of technical correction and the market has shed some weight, though it continues to remain in overbought territory.
However, there is scope for some more gains before the markets head down again. As I mentioned in my last column, now on there would be a time of negative weekly losses, which could span one-three weeks, following which weekly gains might be seen. So for this week, I see net loss over the previous week, which means some heavy profit selling might emerge later in the week.
The Sensex, the first resistance is expected at 12,012 points, which would be a moderate resistance. The next resistance would come at 12,141 points, which would be a stronger resistance and would be very critical for the Sensex because if this level goes, then the outlook would turn bullish. However, there would be a very strong resistance at 12,272 points. A close above this level would be very critical as this would mean more gains with significantly improved undertone on the bourses. In this case, the resistance would come at 12,419 points, which would be a moderate resistance, followed by a very strong resistance at 12,722 points.
On the downside, the first support for the Sensex would come at 11,757 points, followed by support at 11,489 points and 11,323 points. Till this point, the fall would be considered a technical correction, but a decisive close below this level would be considered bearish, indicating further fall.
In terms of the Nifty, the first resistance would come up at 3,678 points, which would be an important resistance and a breach above this level would mean more gains in following sessions. However, there would be an important resistance at 3,717 points, which would decide the trend in the short run. A close above this level would mean a short rally on the bourses, which might extend up to 3,819 points. The next resistance would come at 3,896 points, which in the present circumstance, would be difficult to breach. On its way down, the first support would come at 3,578 points, which would be an important support level. The next would come at 3,512 points, followed by a rock solid support at 3,478 points. If the Nifty settles below this level convincingly on any day, then it would be a clear sign of complete change of sentiments on the bourses.
Among individual stocks, Axis Bank Ltd, Jet Airways (India) Ltd and Grasim Industries Ltd look good on charts. Axis Bank at its last close of Rs607.25 has a target of Rs627 and a stop-loss of Rs583. Jet Airways at it last close of Rs221.45 has a target of Rs237 and a stop-loss of Rs203. And Grasim at its last close of Rs1,779.75 has a target of Rs1,822 and a stop-loss of Rs1,731.
From previous week’s recommendations, Maruti Suzuki India Ltd hit a high of Rs859 and met its target of Rs838 very easily. Bharat Heavy Electricals Ltd hit a high of Rs1,772, which was well above its target of Rs1,698. UltraTech Cement Ltd touched a high of Rs606 and easily achieved its target of Rs596.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at firstname.lastname@example.org