Flat opening indicated for Indian stocks: Monday Market Preview

High crude prices and inflationary pressures are expected keep investors jittery

The domestic market is likely to see a flat opening as most of its Asian peers were trading with modest gains on reports that France and Germany would chalk out a rescue plan for debt-mired Greece. However, European finance ministers who met on Sunday failed to announce the release of a new loan to save Greece from a debt default. Positive economic indicators during the week helped Wall Street break its six-week losing streak. On Friday the US markets closed mixed. The SGX Nifty was 14 points higher at 5,386.50 compared to its previous close of 5,372.50.

The 25-basis-point hike in key policy rates by the Reserve Bank of India (RBI), higher headline inflation for May and worries about a slowdown in the global economy along with the contagion effect of the Greek debt crisis, pulled down the Indian market by 2% last week.

The market, which was largely volatile, closed flat on Monday as the broader indices helped to limit the losses. The indices snapped their four-day losing streak, ending with modest gains on Tuesday, despite a sharp spike in headline inflation for May. Nervousness ahead of the RBI's policy review led to a steep fall on Wednesday.

On Thursday, the rate hike announced by the central bank together with signals of an economic slowdown, dragged the market further down on the last two trading days of the week. Overall, the Sensex tumbled 398 points, to end the week at 17,871, and the Nifty slipped 119 points to 5,366. There is a likelihood of a small gain on Monday. However, it may get capped at around 5,450, or at best around 5,500 on the Nifty.

US markets closed mixed on Friday supported by a slew of positive indicators during the week. A fall in initial jobless claims and an increase in housing starts and a less than estimated fall in retail sales lured investors back to cheaper stocks after the recent decline in the markets.

The Dow gained 42.84 points (0.36%) to settle at 12,004.36. The S&P 500 added 3.86 points (0.30%) to 1,271.50. On the other hand, the Nasdaq shed 7.22 points (0.28%) to 2,616.48.

 Markets in Asia, with the exception of the Shanghai Composite and the KLSE Composite, were trading higher on easing of Greece’s sovereign debt concerns with France and Germany agreeing on a new bailout to the debt-ridden Eurozone member. However, the failure of the European finance ministers to announce the amount of the loan kept investors in the export-dominant region on guard.

Meanwhile, Japanese exports fell 10.3% in May from a year earlier, higher than analysts’ forecast for an 8.4% annual decline, and followed a 12.4% drop in April. Imports rose 12.3% in the year to May, taking the nation’s trade deficit to 853.7 billion yen ($10.66 billion).

The Hang Seng surged 0.74%, the Jakarta Composite gained 0.50%, the Nikkei 225 rose 0.59%, the Straits Times climbed 0.80%, the Seoul Composite was 0.53% higher and the Taiwan Weighted gained 0.28%. On the other hand, the Shanghai Composite declined 0.30% and the KLSE Composite was 0.08% lower in early trade on Monday.

Oil prices fell on Friday, with US crude plunging to a four-month low under $93 per barrel on a dimmer economic outlook and the European debt crisis. US crude futures for July settled at $93.01 a barrel, down $1.94, or 2.04%, its lowest since the 18th February. Brent crude for August settled at $113.21 a barrel, falling 81 cents, or 0.71%, the lowest settlement since 24th May.

Back home, the government is likely to allow foreign individuals to invest in mutual funds in the next two weeks but with a cumulative cap of $10 billion. The detailed guidelines are being worked out jointly by the finance ministry, the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

The move is aimed at broad-basing the flow of foreign investment in the Indian stock market, so that dependence on foreign institutional investors (FIIs), is reduced.

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Weekly Sensex, Nifty: Bulls desperate as market is precariously perched on trendline support!

The Bears hold the upper hand, unless and until the 18,265 to18,372 points range is crossed. As the intermediate term trend is down, the strategy should be to use rallies close to this area for exiting long positions

BSE Sensex close: 17,870




Market trend

SHORT term: Down; MEDIUM term: Down; LONG term: Up

The BSE Sensex fell 2.18% this week on slightly higher volumes. The sectoral indices which led the decline were BSE IT (-4.51%), Oil & Gas (-4.80%) and Teck (-3.14%) while the only sectoral index which gained was BSE Power (+0.26%). 

One can see from the weekly chart (above) that the Sensex is in an intermediate term decline, as it has made a lower top and lower bottom formation. This is also confirmed by the MACD histogram (in green colour marked by the arrow) which fell below the median line in the week ended 13th May 2011, when the Sensex was at 18,531. As long as this oscillator remains below the median level, the intermediate term trend remains down. (MACD is short for moving average convergence divergence.)

At this moment the Sensex has marginally closed below the trendline support (in black) drawn by connecting the lows of 15,960-17,295 points. The immediate support from the 100wema is pegged at 17,625 points and the trendline support (in pink) is at around 17,207 points. The previous significant low of 17,295 points also falls within these two points and should be watched very closely, as a breach would lead to increased pressure on the Bulls.

If one looks at the bullish options (which look distant at this moment) the Sensex has to first survive above the support line this week and bounce. The 20wema pegged at 18,621 points is the first major hurdle that it has to cross and the trendline resistance (in purple) pegged at 19,420 points is the next hurdle to watch out for.

The only hope for the Bulls at the moment is the market maintaining symmetry as seen in the period August 2009 to June 2010. In this scenario we would see a sideways move in the weeks ahead.

Here are some key levels to watch out for this week.

  • As long as the Sensex trades below 18,032 (pivot) the Bears hold the upper hand.
  • Support levels are pegged at 17,683 and 17,495.
  • If the Sensex crosses the 18,032 level in close, it could go up to 18,219 or 18,568.

Strategy
The Bears hold the upper hand unless and until the 18,265-18,372 points range is crossed. As the intermediate term trend is down, the strategy should be to use the rallies (due to some short-term oscillators having just ventured into oversold territory) close to this area for exiting long positions.

(Vidur Pendharkar works as a consultant technical analyst and chief strategist, www.trend4casting.com.)

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COMMENTS

tkkaushish

6 years ago

VERY INFORMATIVE FOR INVESTORS. THANKS

Minor rally seen: Weekly Market Report

The gains may get capped at around 5,450-5,500 on the Nifty

The 25-basis-point hike in key policy rates by the Reserve Bank of India (RBI), higher headline inflation for May and worries about a slowdown in the global economy along with the contagion effect of the Greek debt crisis, pulled down the Indian market by 2% this week.

The market, which was largely volatile, closed flat on Monday as the broader indices helped to limit the losses. The indices snapped their four-day losing streak, ending with modest gains on Tuesday, despite a sharp spike in headline inflation for May. Nervousness ahead of the RBI's policy review led to a steep fall on Wednesday.

On Thursday, the rate hike announced by the central bank together with signals of an economic slowdown, dragged the market further down on the last two trading days of the week. Overall, the Sensex tumbled 398 points, to end the week at 17,871, and the Nifty slipped 119 points to 5,366. There is a likelihood of a small gain on Monday. However, it may get capped at around 5,450, or at best around 5,500 on the Nifty.

In the sectoral space, BSE Power and BSE Fast Moving Consumer Goods ended unchanged, whereas BSE Oil & Gas and BSE IT declined 5% each.

Among Sensex stocks, Reliance Infrastructure surged 7%, Hindustan Unilever, Reliance Communications gained 3% each, Bharti Airtel rose 2% and NTPC added 1%. On the other hand, Reliance Industries, Hindalco Industries declined 8% each, TCS, Wipro fell 7% each and Maruti Suzuki settled 5% lower at the end of the week.

The RBI raised interest rates on Thursday for the 10th time since March 2010. The central bank hiked the repo (short-term lending) and reverse repo (short-term borrowing) rates by 25 basis points each, and these now stand at 7.5% and 6.5%, respectively. The central bank stated that it would continue to deal with stubbornly high inflation while balancing the adverse movements with global developments and their likely impact on domestic growth.

Headline inflation went up to 9.06% in May on rising prices of manufactured products and petrol. Inflation, as measured by the Wholesale Price Index (WPI), stood at 8.66% in April. It was 10.48% in May 2010. Inflation has been above 8% since January 2010. It has stayed above 9% since December last year and moderated to 8.66% in April this year, before the latest rise.

Food inflation for the week ended 4th June eased marginally to 8.96%, from 9.01% in the previous week. The latest fall, although very marginal, is seen as a silver lining by the government, which has been battling the high price rise across all segments for the past few months and has had to also contend with low economic growth and factory output numbers in recent months.

In the corporate world, the 13-day strike at the Manesar plant of Maruti Suzuki India (MSI) was called off late Thursday night following a deal brokered by Haryana chief minister Bhupinder Singh Hooda. MSI has agreed to reinstate the 11 workers who were sacked and it will take a lenient approach on the no-work-no-pay rule for the strike period. On the other hand, the workers have conceded the management's demand not to have a second union in the company.

Tata Steel said on Thursday that it has sold its 26.27% stake in Australian coal miner Riversdale to global mining major Rio Tinto for A$1.06 billion ($1.11 billion). "Tata Steel has decided that it would not want to hold its equity investment in Riversdale Mining, which is proposed to be delisted, without any joint venture agreement with the majority shareholder in unlisted Riversdale," the company stated.

Reliance Industries (RIL) was under pressure during the week, after a report by the Comptroller and Auditor General (CAG) said the oil ministry and its technical arm, the Directorate General of Hydrocarbons (DGH), allegedly favoured RIL by allowing it to double the development cost of its landmark KG-D6 gas field. The company denied any wrongdoing.

On the international front, China's inflation accelerated in May to a 34-month high of 5.5% and up from 5.3% in April. Also, the country's central bank announced a 50-basis-point increase in reserve requirements for banks, putting pressure on lenders.

This apart, the Bank of Japan kept its interest rates steady at 0%-0.1% and added 500 billion yen ($6 billion) to its 3-trillion-yen loan scheme, aimed at boosting lending to industries with growth potential.

German chancellor Angela Merkel on Friday dropped her government's insistence on forcing a rescheduling of Greek government bonds, ending a six-week impasse that threatened to halt any more loan payouts to Greece. The move came as the Greek prime minister reorganised his government, naming a new finance minister and pushed an austerity package into law. EU finance ministers are to meet on Sunday to discuss a new aid package for the crisis-ridden Mediterranean country.

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