Dollar to be watched this week; markets may test crucial levels

Dollar to be watched this week; markets may test crucial levels
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First Published: Mon, Mar 09 2009. 01 15 AM IST

Updated: Mon, Mar 09 2009. 11 15 AM IST
It’s darkest before dawn— that’s an old saying which has relevance to the current state of stock markets. No doubt that its dark all around; whether it is on the economy front or the stock markets, the gloom has cloaked the entire economic system globally. However, no one knows for sure whether it’s darkest yet. Though the global macroeconomic signals are still pointing down, valuations have fallen to very attractive levels. Also, global bourses are heavily oversold and suggest that the current state of the economy is now factored in the valuations. But the fear still lingers of more pain likely in future, which is actually driving the markets crazy. With the crisis related to General Motors Corp. (GM) and Citibank NA on horizon, one cannot rule out the pain yet, but it seems that we are fast reaching a stage where worth and valuations would start coming back in the reckoning.
Focusing on this week, we may see range-bound volatile movement on Indian bourses due to a holiday-shortened week as no one would like to keep positions open in view of the uncertainty on global bourses. However, the dominance of the US would continue to rule world markets. Immediately following the holiday, Indian markets will look for cues from manufacturing output and industrial output for the month of January on 12 March. This would be important data, which could set the tone on the bourses. In the US, the undertone would be set by a handful of economic reports, including a government report on February retail sales and a survey of consumer sentiment. With the Dow and S&P now placed at their 12 year lows, there could be some bargain hunting by investors who are sitting over cash; however, it may not be sustainable as the mess with the banking system in the US is far from over.
What would be worth watching this week would be the dollar index (against a basket of leading currencies), which is showing signs of peaking out. This would be a favourable scenario for the world stock markets. The second important factor to watch out this week would be the trend and prices of key commodities, including metals such as copper, steel, aluminium, etc., as they have been witnessing a firm trend over a few weeks. The rising price of copper is associated with increased demand from China. If commodity prices sustain the northward momentum, then it would be a very positive sign for equity markets.
Technically, the markets are showing volatility with a downward bias. This clearly means that there was no confirmed trend at close on Friday. However, since the bias remains weak, the sporadic gains could be capped with profit selling unless fresh and heavy volumes emerge on declines supporting the spurt. The study of volumes show that this is not in sight as of now.
Fight for survival: A file photograph of a worker at a General Motors’ plant in the US. The company’s auditor has voiced doubt about the auto maker’s ability to continue as a going concern. Carlos Osorio / AP
This week, the markets may edge up initially on some optimism over the global economic scenario. However, gains are likely to be capped due to the holidays ahead.
On its way up, the Sensex could find its first resistance at 8,393 points, which would an important resistance to watch for. A comfortable close above this level would be greeted with some optimism, and the Sensex would face the next resistance in the band of 8,496 to 8,528 points. This would be a moderate resistance band and may not threaten the northward trend. However, a close above it would be considered positive, with confirmation of the strengthening of the immediate trend to 8,669, which would be the termination point as per technical analysis now. If it moves up further on change in sentiments, then the next resistance would come up at 8,872 points.
On its way down, there is an immediate support at 8,263 points, which is a reasonably strong support. If the Sensex falls below this level on heavy volumes, it could change the mood on the bourses as the support would then shift to 8,139 points. This would be a minor support and may not provide enough ground to a falling Sensex. But a close below 8,034 should be treated as a strongly bearish signal, which would lead to a further fall on the bourses with the next support coming at 7,877 points, which would again be a moderate support, with a major support coming at 7,697 points. This level should offer rock solid support to a falling Sensex for the time being at least, and should trigger a relief rally somewhere around these levels.
For the S&P CNX Nifty, the first resistance is now placed at 2,656 points. A comfortable close above this level would mean continuation of the trend on the bourses. The bias would then turn cautiously positive and the resistance would shift to 2,711 points. This too would be an important resistance, and a close above it would strengthen the immediate trend and the resistance level would then shift to 2,759 points. This would be a moderate resistance level and may not offer much threat to the positive momentum. However, there would be confirmatory resistance placed at 2,801 points. If the Nifty crosses above this level, it would be a very positive signal.
On its way down, there is immediate support at 2,589 points, which is a strong support. However, a close below this level would affect the undertone on the bourses as the next support would then shift to 2,541 points. This would be a very critical support level as a close below this would confirm more fall on the bourses with the rock bottom shifting to 2,252 points.
Among individual stocks, this week Reliance Communications Ltd, Larsen and Toubro Ltd (L&T) and Sterlite Industries Ltd look good on the charts. Reliance Communications at its last close of Rs137.90 has a target of Rs148 and stop-loss of Rs122. L&T at its last close of Rs580.75 has a target of Rs595 and stop-loss of Rs561. And Sterlite Industries Ltd at its last close of Rs250.20 has a target of Rs263 and stop-loss of Rs228.
From the previous week’s recommendations, Adlab Films Ltd, Bank of India and Kotak Mahindra Bank Ltd triggered their 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: Mon, Mar 09 2009. 01 15 AM IST