The major trend of the indices turned downwards in the earlier intermediate declines as all the indices dropped below their respective targets along with scores of stocks confirming a major downtrend. Thus, the current intermediate uptrend is a rally within the major downtrend and will usually last for a few weeks and will usually retrace about 50% to 66% of the earlier intermediate decline. The trading volume in the current intermediate uptrend is pretty thin confirming that the intermediate uptrend is a rally within the major downtrend and unless the current intermediate uptrend is able to take the indices past the May intermediate tops, the major uptrend will not be reinstated.
Among the sectors, the BSE Metals Index again outperformed the indices in the last week as it gained 12.72% and was followed by BSE Oil & Gas index which gained 11.86%. The BSE IT Index was the next to follow gaining 8.88% and than the BSE FMCG Index which gained 8.76%. The Sensex gained 7.33% in the last week and the Nifty ended 8.23%. The market breadth was weak on most of the trading days in the last week as the mid cap and the small cap stocks continue to lag behind and will require quite some time before we start seeing stocks in these sectors bottoming out. Many of these stocks have dropped sharply in the past few weeks and will require time to make new bases before we start seeing strong bullish activity in these stocks. Investors must not be in a haste to get into these beaten down stocks and must wait for the volume and the price action to confirm that the major trend has turned up.
The strong rise on Friday was not accompanied by a surge in trading volumes and we have not seen any strong follow through days even though the indices had some strong up moves in the intermediate uptrend. Usually we will see a strong follow through rise with a strong surge in trading volume between the fourth and the seventh day if the bulls were to get back into action. Friday's rise was more a reaction to the Fed news and seems like a sell on the rumor, buy on the news occurrence fuelled by a short squeeze.
The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are at, 9901.58 and 2899.25 respectively. As long as the indices continue to exhibit ascending intermediate tops and bottoms, the intermediate trend will be up and traders must trade on the long side. Investors must continue to keep a close watch on stocks which are exhibiting strong surge in volumes, which suggests institutional buying and keep a track of stocks which are exhibiting strength. Last week I had discussed a few such stocks and today I will follow up with some more stocks.
ITC has retraced close to 66% of the earlier fall and has been in an intermediate uptrend since the stock made a bottom of 140.40. Near this bottom, we saw a strong surge in trading volumes indicating a rise in the activity by big investors who were interested in value buying. But as the stock continued to move higher, we are now seeing low volumes suggesting that at higher levels, we are not seeing strong buying. This could result in the stock exhibiting lower intermediate top and the current rally could end. Traders can look for partial profits and trail the balance long positions with trailing stops. Investors must wait for more confirmation by the stock and also by the indices before they start picking long positions.
Wipro is another stock which has seen a strong activity in the current intermediate uptrend. The stock has already retraced more than 66% of the earlier intermediate decline indicating that the stock has been outperforming in the current intermediate uptrend and as a result we are seeing a bullish relative strength. The stock has a strong resistance between 525 and 550 where traders can look for profits. The trading volume exhibited by the stock has been quite positive and investors must keep a close watch at the stock. Keep a track of how the stock is performing in the next intermediate downtrend and this will give use more clues about the volume action.
Colgate is another stock in the FMCG sector which has been exhibiting a bullish relative strength. The stock has retraced more than 66% of the earlier intermediate downtrend and as a result the relative strength line is outperforming. The trading volumes have been thin and it suggests that though the bulls are active at lower levels, they are not ready to support the stock at higher levels , which will result in the stock drifting down and will not cross the earlier intermediate top. Traders can look for partial profits and investors must keep a watch at the volume action in the next intermediate downtrend. Wait for the key indices to suggest that the market has bottomed out and than start picking up long positions.
The author can be contacted at [email protected]