Week ahead: Sell on rally

Arun Kejriwal runs his own advisory firm, M/s Kejriwal Research and Investment Services Pvt Ltd. He advises HNIs, corporates and brokers on managing portfolios and investment opportunities.

He helps new promoters to tap the capital markets and also those who are keen to learn the nuances of the market. Equipped with a commerce and law degree, he has rich experience of over two decades in dealing with the markets.

Last week's trading reflected short covering and the effect it can have on the markets. The indices went up on three of the four trading days. World markets were also mixed and followed the American markets, which had a very strong rally for the initial part of the week, but sharp selling and renewed slowdown and recession worries brought down the American markets to finally end almost flat - but in negative territory.

Results continue to be mixed, but the positive ones are few and far between. Almost all companies have suffered on account of forex, whether it is on the foreign exchange loans taken or the FCCBs issued or the imports or exports of the company. Margins are under pressure and the sales have been affected because of a slowdown.

The US markets were marginally down with the Dow Jones losing 76.7 points or 0.95%, while Nasdaq lost under a point, a mere 0.87 point or 0.06% to close at 1476.42 points. Asian markets performed much better and rose substantially with the Hang Seng gaining 699.61 points or 5.56 % to close at 13278.21 points. Nikkei gained less with the benchmark index gaining 248.8 points or 3.21 % to close at 7994.05 points.

The BSE Sensex gained 749.89 points or 8.64% to close at 9424.24 points. With this gain, the BSE Sensex has not only recovered the entire loss of the previous week, but has gained some more. The Nifty gained 196.25 points or 7.33% to close at 2874.80 points.

The markets gained handsomely this week on short covering alone as FIIs continued to be sellers and domestic institutions being net buyers. Petrol, diesel and LPG prices were reduced and the UPA government is now in election mode, which is likely to be held in April - May 2009.

All the sectoral indices gained ground with the exception of the BSE Healthcare, which ended almost flat losing a mere 2.5 points or 0.09 % to end at 2713.84 points. The top performing indices were the BSE Metal, which gained 673.14 points or 15.21 % to close at 5100.14 points and BSE Realty, which gained 154.45 points or 10.20% to close at 1668.08 points.

Amongst individual gainers, Madras Aluminum gained the maximum 5% each day to gain Rs 19.65 or 28.7% to close at Rs 83.10. This share has been on an uptrend ever since the promoters at its Board meeting announced their intention to acquire the outstanding shares and delist the company.

Steel Authority gained Rs 11.25 or 15.72% to close at Rs 82.80 and Unitech gained Rs 5.20 or 19.29% to close at Rs 82.80. A big gainer for the week was Reliance Industries, which gained Rs 172 or 14.9% to close at Rs 1,325. This gain helped the BSE Sensex, the Nifty, the BSE 100, the BSE 200, BSE 500 and the BSE Oil and Gas to post sharp gains. Decent gains from ICICI Bank and State Bank of India also helped the indices.

Coming to the next week, the Asian markets will be open after the Chinese New Year holidays and in all probability the selling from the foreign institutional investors will commence once again. Overseas cues and FII behavior will determine the course the markets will take.

I am of the firm belief that though the short term charts indicate bullishness based on the sharp rally during the week, this week is likely to see another reversal at higher levels with maybe an initial rally in the first two days, if at all.

Traders are advised caution and buying at higher levels should be avoided or monitored carefully. The discount in stock futures which I talked about disappeared last week and one would see the same again appearing as we move forward.

The Sensex has support at the 9195-9200 levels and then at 8995 levels. The next support is at 8844 and then at 8675-8700 levels. In the unlikely event of this breaking the next support exists at 8350 level. The Sensex has resistance at 9545, then at 9645 and then at 9896-9900 levels. If this is crossed, there is strong resistance at the 10300 levels.

The Nifty has support at 2805, then at 2745 levels, then at 2698 and finally at 2600 levels. It has resistance at 2912, then at 2942, then at 3019 and multiple resistances between 3137 and 3147. If this figure is crossed, the final resistance is at 3200 levels.

In conclusion, this week is likely to see the market attempting to break upwards and reach the physiological levels of 10K and 3K on the Sensex and Nifty respectively. There would be selling pressure and profit booking at higher levels and extreme caution is advised at higher levels.

SEBI disclaimer: I have no investments in any of the stocks referred above.