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Technical factors signal a decline

Technical factors signal a decline
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First Published: Sun, Aug 29 2010. 08 21 PM IST
Updated: Sun, Aug 29 2010. 08 21 PM IST
Key stock market indices fell last week in the absence of fresh triggers to fuel the market’s rise. Weak global markets added to the gloom though economic data released in the week was positive with US weekly jobless claims and second-quarter gross domestic product (GDP) numbers both beating expectation. In Europe, data showed that Britain’s economy grew at its fastest pace for nine years in the second quarter although economists said the gain was unsustainable. Germany released impressive second-quarter GDP and consumer sentiment data. Japan, however, struggled with the strengthening of the yen against the dollar, prompting Prime Minister Naoto Kan to vow firm measures and fuelling speculation that the central bank would ease monetary policy to arrest the yen’s rise. Indian markets took their cues from overseas as the earnings season winds down.
On Monday, the markets will likely open higher tracking gains in the US, but technical indicators point to a fall later in the week after brief consolidation. The market may resume flat to lower on Tuesday, followed by a technical bounce. The extent of the bounce will depend on trading volumes. If the trading volume goes up sharply, it would be a clear sign of strength. Any rebound accompanied by muted trading would be a signal of weakness in the coming days.
On its way down, the Nifty will find its first, critical support at 5,368 points. If it falls below this level on higher volumes, selling it likely to intensify. A strong bounce from this level may contain negative sentiment. In case it falls below this level, the Nifty has immediate support at 5,332 points. If this level, too, fails to hold, there are chances of the index falling to 5,236 points. This level is likely to offer very strong support to a falling Nifty and, as of now, this looks like the bottom for the index in the short term.
In case the Nifty rebounds, it will face tough resistance at 5,454 points. If the benchmark crosses this level, it looks set to extend the gains. The trading volume would again hold the key. The index’s next resistance level is seen at 5,513. Very strong and meaningful resistance is seen for the Nifty at 5,553 points which, if overcome, would change investor sentiment and set the stage for more gains.
Critical economic data due this week include April-June GDP numbers due on 31 August, which might offer some direction to the markets. Other data that will be closely watched include the HSBC Markit purchasing managers’ index for August and monthly auto sales and cement dispatches.
Among individual stocks, ACC Ltd, LIC Housing Finance Ltd and Hindustan Zinc Ltd look good on the charts. ACC, at its last closing price of Rs872.10, has a target of Rs891 and a stop-loss of Rs853. LIC Housing Finance, at its last closing price of Rs1,208.35, has a target of Rs1,242 and a stop-loss of Rs1,183. Hindustan Zinc, at its last close of Rs1,062.60, has a target of Rs1,086 and a stop-loss of Rs1,038.
Vipul Verma is chief executive officer, Moneyvistas.com. Comments, questions and reactions to this column are welcome at ticker@livemint.com
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First Published: Sun, Aug 29 2010. 08 21 PM IST
More Topics: Ahead of the Ticker | Vipul Verma | Markets | US | GDP |