Strained upmove: Weekly Market Report

Nifty to move between 4,700 and 4,900

The market settled lower for the fourth successive week, mainly on global issues and worries over the fall of the rupee against the dollar. Concerns about the slowing pace of domestic growth also weighed on the sentiments, resulting in the market alternating between losses and gains and settling down 4% in the week.

Overall, the Sensex tumbled 676 points to close the week at 15,695 and the Nifty lost 196 points to 4,710. The market is likely to face a struggle in its attempt to notch some gains. We may see the Nifty moving in the range of 4,700 and 4,900.

The indices closed sharply lower on Monday on European debt concerns and the US fiscal deficit issues. Bargain hunting after an eight-day losing streak enabled the market close in the green on Tuesday. The market ended sharply lower on Wednesday on uncertainty in Europe and a lower-than-expected US GDP growth in the September quarter.

The indices witnessed a smart bounce back in the last hour tracking the firm European markets, closing in the positive on Thursday.  The market closed weak on Friday as the EU economic and monetary affairs commissioner on Thursday stated that public finances were under stress.

All sectoral indicates settled lower in the week. The BSE Metal index and BSE Consumer Durables index, both down 5%, were the worst performers.

Among Sensex stocks, Coal India gained 4%, Larsen & Toubro rose 2%, Maruti Suzuki, Tata Motors and Cipla added 1% each. On the other hand, Jindal Steel & Power (down 9%), Hindalco Industries, Sterlite Industries (down 8% each), Reliance Industries and ICICI Bank (down 7% each) were the major losers on the index.

The top gainers on the Nifty were Coal India (up 4%), L&T (up 2%), Maruti Suzuki, GAIL India and Tata Motors (up 1% each). The laggards were led by SAIL (down 13%), Jindal Steel & Power (down 9%), Hindalco Ind, Sterlite Ind (down 8% each) and Hero MotoCorp (down 7%).

The government on Thursday approved 51% foreign direct investment (FDI) in multi-brand retail. The move is seen as a major signal from the government to go ahead with key reforms negating an image of policy paralysis. Reserve Bank of India governor D Subbarao said 51% FDI in multi-brand retail would attract foreign capital into the country. “It is a visible measure (taken by the Centre) that will bring in right capital in the country,” he said.

Food inflation fell sharply to single digit at 9.01% for the week ended 12th November from 10.63% in the previous week. Food minister KV Thomas stressed that the government is concerned over high food inflation and is taking steps to bring it down.

Attributing the weakening of rupee to uncertain global economic environment, the minister of state for finance Namo Narain Meena said it will increase inflationary pressure by pushing up import bill. The rupee has weakened 18% against dollar so far in 2011 and had touched a historic low of 52.73 on 22nd November.

“The main reason for depreciation of the rupee against US dollar is uncertain global economic environment, particularly unfolding of Eurozone sovereign debt crisis,” Mr Meena said.

On the international front, Italian two-year government bond yields rose to new euro-era highs above 8% on Friday after a weak treasury bills and zero coupon bonds auction and despite the European Central Bank buying debt in the secondary market. In another development, Standard & Poor’s downgraded Belgium’s sovereign credit rating by one notch to ‘AA’ from ‘AA+’, citing a slowdown in the economy and “protracted political uncertainty”.

In the US, Congress’ special debt-reduction committee failed to reach an agreement earlier this week, setting the stage for $1.2 trillion in automatic spending cuts and re-igniting worries that economic-stimulus initiatives that are set to expire will not be renewed.


A small contra trend recovery could materialise but bears in control

It is now very clear that the bulls have to regroup and make serious efforts if they have to stem the rot as the bears run riot. The first step in this direction would be to stage some sort of a small come-back this week

S&P Nifty close: 4710.05

Market Trend

Short Term: Down         Medium Term: Down        Long Term: Down

The Nifty opened lower for the week as the bear hammering continued. We saw a bottom on the 23rd (as was envisaged in last week’s piece) as the Nifty staged a smart intra-day recovery but it was successfully tested the very next day. The Nifty lost another 195 points (-3.99%) on higher volumes than last week as the bears tightened their grip. The sectoral indices which outperformed the market were BSE Healthcare (+0.23%) and BSE Capital Goods (-0.18%) while the ones which underperformed were BSE Metal (-5.35%), BSE Consumer Durables (-4.91%), BSE Oil & Gas (-4.81%) and BSE FMCG (-4.31%). 

The weekly histogram MACD has fallen below the median line confirming that the bears are in control. It is now very clear that the bulls have to regroup and make serious efforts if they have to stem the rot as the bears run riot. The first step in this direction would be to stage some sort of a small comeback this week. If they are unable to do so then they will be in a more precarious position.

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

  • As long as the S&P Nifty stays below 4,741 points (pivot) the bulls will remain under pressure.
  • Support levels in declines are pegged at 4,608 and 4,506 points.
  • Resistance levels on the upside are pegged at 4,843, 4,929 and 4,975 points.

Some Observations
The bears have established their supremacy and the onus is now on the bulls to rescue the desperate situation they find themselves in.
1.    Resistance in rallies is pegged at 4,929, 5,019 and 5,109 points (retracement levels of the fall from 5,399-4,639 points.
2.    A double bottom at 4,640 on the intra-day charts gives an upside target of 4,800 provided we do not sustain below 4,700 now.
3.    The volumes in the last two weeks fall have been high implying that rallies if any will be sold into.
4.    If the recent lows hold a small contra trend bounce is expected which could top out around 1st December 2011.
5.    If the small rally does take place around 1st December, use this as another selling opportunity.

A temporary bottom as expected materialized around the 23rd November, which did trigger some short covering during expiry. However, it has not been able to maintain these gains and it will be interesting to see whether we witness a smart recovery into the mid of this week, which can be used as an opportunity to sell. If the rally does take place then the battle will become interesting rather than a one sided one as seen for the last 3-4 weeks.

(Vidur Pendharkar works as a Consultant Technical Analyst & Chief Strategist,


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