Slope of Hope?

A classical Bear market always keeps the “Hopes of Recovery” alive by not allowing them to become a reality.

Week that was

Every thing looked fine at the start of the previous week. There was a massive stimulus package announced by China. Dollar demand across the globe had eased down. Pace of FII outflows from Indian markets had slowed down. Global cues were better. Local sentiments improved. Helped by the above factors, Sensex rallied to the levels above 10500 points at the start of the week itself.

Huge sell-off came thereafter. Sensex lost more than 1000 points from the top it formed for the week and ended with a net loss of 580 points (5.81%) for the week. Better than expected IIP numbers (4.90%) for the first half-year (2008-09) and surprise fall of Inflation rate to single digit (8.98%) failed to arrest the losses for the week. Realty Sector was the worst affected with a weekly loss of 14% followed by Capital Goods Sector.

US economic data released during the week confirmed that US is in the grip of recession. Also, there were doubts in the minds of investors regarding the continuity of support to the Wall Street after the regime change. Nasdaq lost as much as 8% and Dow Jones lost 5%. Other major Global Indices barring China also faced big correction during the week.

Rupee witnessed one more fall because of renewed demand for US Dollar. Crude Oil continued its downslide.

Week Ahead?

G-20 meeting has come out with a set of sweeping plans to revive the world economy. Efficacy of these plans is yet to be known as an outgoing US President headed the meeting and the incoming US President did not participate in the meeting.

Surge in CBOE Vix (Volatility Index) and NSE Vix indicate that there will be huge volatility in the coming week also. Technically (as we mentioned in the previous week) Sensex has already broken the important support line of 9600 points and closed well below it. Other technical indicators also point out that the downtrend may continue in the coming week also. However, with the Inflationary expectations moderating, any RBI action in bringing down the interest rates may be a positive factor for the market.

Sensex may find a technical support around 8900 points and a resistance around 10200 points. Traders may consider taking opposite position on extreme situations however with strict stop losses. Investors may consider entering into ETFs (Sensex and Nifty ETF) at the levels around 9000 points with a long-term view.

Rupee is expected to be consolidating around 50 levels and much will depend on FII action and RBI intervention.