Analysts say market poised for profit-taking this week

The market is poised for profit-taking and consolidation this week following strong bargain hunting gains on some key blue chip stocks.

“Profit-takers might seize the market’s advance to cash-in their gains, especially after Wall Street reversed to negative zone last Friday. While this timing is sought for by bargain lookers, improvement in participation might not be visible yet, given uncertainties at the global macro front,” said investment stock portal 2tradeasia.com

Last week, the main composite index rose three percent or 56.71 points to close at 1,978.05, aided by net foreign buying on two out of the five trading sessions of the week.

2tradeasia.com has advised investors to stick to defensive plays for now, or stocks that are likely to ride out the economic crisis.

The market’s immediate support was pegged at 1,940-1,950, while resistance is seen at 2,000.

AB Capital Securities said stocks appear to have hit a near term bottom at the 1,900 support level which could be the same for the Dow Jones Industrial average at the 8,000 level. 

“The bottoms of both the local and US market’s consolidation range have not been violated yet, so it is still possible that prices may break to the upside in the near term. The US stock market had been taking the lead in terms of market direction,” said Jovis Vistan of AB Capital Securities.

The economic turmoil has spread throughout the world with Germany as the latest to announce that its economy has officially entered a recession after it contracted for a second straight quarter. 

The Paris-based Organization for Economic Cooperation and Development said last week that the world’s three largest economies will see a protracted slowdown next year with the US seen to shrink 0.9 percent, Europe by 0.5 percent and Japan by 0.5 percent.

“Weakness in the major economies has pulled down commodity prices to record lows.World crude oil prices hit a 22-month low of $55 a barrel even after OPEC president Chakib Khelil indicated OPEC may cut supply again,” Vistan said.

Vistan said year end window dressing will help share prices hold support but volume will be thin. “We will be going through a period of pause; a period where downside excess will be corrected sentiment will revert back to the mean,” he said.