Markets likely to consolidate this week in absence of fresh triggers

Markets likely to consolidate this week in absence of fresh triggers

Continued foreign fund inflows and renewed buying by investors also pushed key indices higher. It was reassuring to see investors emerge as buyers of stocks at lower levels. This is an important point, suggesting that there is sufficient depth in the market.

Globally, the trend was positive and all major bourses posted gains over the week. The highlight of last week was the Dow in the US crossing 10,000 points, which was a key resistance level, although the index retraced substantially after hitting the mark. Caution prevailed after General Electric Co. and Bank of America Corp. posted lower-than-expected financial results, which demonstrated that the road to recovery in the world’s biggest economy might not be smooth.

Global markets face an uphill task in maintaining the northward momentum as corporate performance is put to the test against ground realities and analyst expectations. Heavyweights including 3M Co., Microsoft Corp., McDonald’s Corp., Pfizer Inc., Coca-Cola Co., American Express Co., DuPont Co., Apple Inc., Texas Instruments Inc., Inc., Yahoo Inc., United Parcel Service Inc., eBay Inc., Kimberly-Clark Corp., Altria Group Inc., Hasbro Inc., Wells Fargo and Co., and US Bancorp will be reporting earnings this week that would be closely examined by analysts for indications on the larger economy.

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On the economic front, the calendar is somewhat light. Reports are due on September housing starts and existing home sales and the September Producer Price Index. Apart from these, the US Federal Reserve will release its Beige Book, an anecdotal snapshot of regional economic conditions. Weekly jobless claims data will be scrutinised for evidence of any improvement on the employment front.

Back home, the earnings calendar is packed this week. Frontline firms due to report earnings include Sterlite Indudtries Ltd, Jaiprakash Associates Ltd, Tech Mahindra Ltd, Sesa Goa Ltd, Larsen and Toubro Ltd, Raymond Ltd, Hero Honda Motors Ltd, Hindustan Zinc Ltd, Biocon Ltd, Bharat Heavy Electricals Ltd, JSW Steel Ltd, NTPC Ltd, Dr Reddy’s Laboratories Ltd, TVS Motor Co. Ltd, Century Textiles and Industries Ltd, IDFC Ltd, Punj Lloyd Ltd and Maruti Suzuki India Ltd.

On the economic front, there is no major indicator due this week other than weekly inflation and fortnightly bank loan growth, forex reserves and money supply data. Except for weekly inflation, other indicators are not likely to have any impact on the stock markets.

Technically, the markets are likely to consolidate, as there are no fresh triggers and some profit booking is expected later this week. Major technical indicators are looking northward and despite being in the overbought zone, they are still not showing signs of an immediate reversal. Still, prominent technical studies are now pointing to a spell of consolidation on the stock markets.

If the Nifty falls below 5,060, the undertone would turn negative. The next support level for a falling Nifty would come at 4,991 points, but it will be good for only a moderate decline which is not supported by high volumes. However, if the volumes support the downtrend, the selling could intensify and the Nifty may test even lower levels like 4,920 points. The likely bottom for the market would be at 4,878 points.

If the Nifty rises, it would come across strong resistance at 5,159: a breach of this level would push the resistance to 5,204 points. If this level goes, there could be a sharp, short rally, which would see terminating resistance at 5,134 points. However, I do not see it happening this week.

In terms of the Bombay Stock Exchange, Sensex, the first resistance is expected at 17,389 points, followed by 17,544 and 17,745. On the downside, critical support is expected at 17,060 which, if breached, would signal a further decline. The next support is at 16,990 points, but it’s not likely to be a strong support. The next logical support will be at 16,827 points, followed by rock bottom at 16,591.

Among individual stocks, this week ACC Ltd, Welspun Gujarat Stahl Rohren Ltd and Alstom Projects India Ltd look good on the charts. ACC, at its last close of Rs792.75, has a target of Rs810 and a stop-loss of Rs774. Welspun Gujarat Stahl Rohren, at its last close of Rs281.25, has a target of Rs288 and a stop-loss of Rs274 while Alstom Projects India Ltd, at its last close of Rs572.80, has a target of Rs584 and stop-loss of Rs571.

From the previous week’s recommendations, Union Bank gained 14.7% during the week and met its target easily. Housing Development Finance Corp. and HDFC Bank also gained sharply during the last week and hit their targets.

Vipul Verma is CEO, Your comments, questions and reactions to this column are welcome at