Global markets rallied last week, after the US government released details of its highly anticipated plan to clean toxic assets from banks’ balance sheets.
I had mentioned in my last column that this will be the trigger and may start a new phase on the bourses. Much on the expected lines, the US government’s bank bailout plan not only triggered a rally on the global bourses but also improved the sentiment immensely.
The economic data coming from the US last week were also good and added to the positive sentiment. From housing to unemployment, the data showed the worst was probably over to some extent.
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Back home, the rally entered its third week on persistent buying by funds and strong global sentiments. It is worth mentioning here that the foreign funds that have been the force behind the market have been buyers in the last few days. The quantum of their buying, though, has not been as much as it used to be.
Sharp gains on the bourses in the last three weeks, meanwhile, have pushed the benchmark index of the Bombay Stock Exchange, the Sensex, roughly 26% higher this month from a low of 8,047.17 touched on 8 March, though there is no fundamental change behind such a strong rally. It was fuelled by hope and optimism, while fundamentals continue to remain weak. The big question now is: How far this rally will go?
The clear answer is: As of now the rally still seems to have some steam left. A study of the volumes show that the situation on the bourses is good and probably the market is now correcting itself as per the reasonable macroeconomic conditions.
It is also clear, however, that the market cannot simply go on this way because there are bound to be technical corrections. But despite technical corrections, the undertone on the bourses will still remain positive and the market will have a tendency to bounce back after a technical correction rather than getting carried away by it.
Also, the corporate results season is about to begin. It will have a major impact on the stock markets, but given the present condition, the worst is already discounted.
This week, the sharp fall on the US bourses on Friday might dent the sentiments on Monday and the markets could fall briefly. However, the closing on Monday would be very important.
If the Sensex slips and settles below 9,913 points, then this will mean a technical correction will set in on the bourses. On its way down, the next support level will be expected at 9,690 points. This will be a moderate support level and may get breached if higher volumes support falling prices.
After this, the next support is expected at 9,392 points. If the markets falls further from this point, then the next support level is expected to come around 9,112 points, which is likely to give a solid base to the market and under normal circumstances, the Sensex should not go below this level.
On Monday, however, if the market ignores the US markets and after an initial brief fall, it bounces back, then it is likely to move up further and test its first resistance at 10,187 points, which will be a moderate but important resistance level. A close above this level will mean more strong gains ahead with the next resistance level shifting to 10,483 points. This will be a strong resistance but if the northward momentum scales this level and closes above it, there will be a strong resistance at 10,676 points.
For the Nifty, the first resistance level will come at 3,159 points. It will offer a strong resistance to a rising Nifty. A close above this level, however, will be very positive and will place the Nifty in the bullish zone.
The next strong resistance will then come up at 3,243 points. However, if it closes above this level, then it will push the Nifty towards 3,367 points, which is a strong resistance level.
On its way down, the first support for the Nifty is expected at around 3,015 points. Below this, the next meaningful support will come at 2,916 points followed by a support at 2,834 points.
Among individual stocks, this week Allahabad Bank, Bharat Earth Movers Ltd (BEML) and Dabur India Ltd look good on charts. Allahabad Bank at Rs40.15 has a target of 44 and a a stop-loss of Rs36. BEML at its last close of Rs375.80 has a target of Rs389 and a stop-loss of Rs359. And Dabur India at its last close of Rs93.70 has a target of Rs98 and a stop-loss of Rs89.
Vipul Verma is CEO, Moneyvistas.com. Your comments, questions and reactions to this column are welcome at email@example.com