Mathematical analysis has shown that in most stock and future markets, price action has a small trend component and it is this trend component that allows the investor or a trader to achieve a long term edge that translates into profits. Thus, in order to exploit the trend component, you must trade with the trend.

A successful investor/trader studies the trend rather than what caused the trend. People are emotional and these "emotions makes prices". Many investors try to catch tops and bottoms and waste most of their energy to find out exact tops and bottoms. If an investor or a trader can catch just the middle part of the trend,he can make a lot of money. Looking out for absolute bottoms or a top, you can get burned many times. However, by the time the market does bottom or top, you'll be disappointed in your failures.

In the top down approach that I use for investments, the first thing that the investor must look at is the direction of the major trend. Currently, the major trend of the market is up since it has bottomed out in December 1998. However, a few stocks have recently dropped below their earlier intermediate bottom and have gone into a major downtrend.

The Sensex has also moved close to its earlier intermediate bottom and has to stay above its earlier intermediate bottom of 4470.52 in the current intermediate downtrend to suggest that the major trend of the market is up. The weekly momentum indicator for the Sensex is already in an over bought zone and has moved very close to their respective trigger lines. A fall in the weekly momentum indicator below their trigger line will mean that the indices will also correctthemselves and the correction could mean that we could see a sideways or a mini bear market soon.

This must be kept in mind before any fresh investments are made. In my last two articles, I had already advised investors to look out for partial profits in the long positions that they had picked up earlier in the year and to wait for a correction to get into any fresh long positions. The same criteria holds even today for any fresh long positions. Now, I will take a look at a very small sector i.e., the Zinc metal sector. There are only five companies listed in this sector, but three companies within this sector have already bottomed out and are in a major uptrend. There has been a rise in the activity in the sector recently and higher levels in the stocks within this sector will be seen. Minor declines in the next week or two could be used by traders to pick up the stocks within this sector.

Binani Inds

Binani Inds bottomed out in July 1999 and went into a major uptrend with a rise in volume. Aspurt in volume not only in the stock but also in the other stocks in this sector is a bullish sign. The 30 WMA for the stock has moved up and the weekly momentum indicators for the stocks are bullish suggesting higher levels in the stock in the next few weeks. Thus, investors must continue to hold on to their long positions.

More long positions in the stock can be added when it pulls back towards its 30 WMA. Use the next intermediate correction within the sector to pick up the stocks. Though the stock is not the leader in this sector, it could be held on by the investors as the activity in the sector has picked up recently.

The relative strength line for the stock has been bullish and is above its zero line which means that the stock is currently outperforming the indices and should do so for some more time till the activity in the sector remains bullish.

Hind Zinc

Hind Zinc is technically the leader within the Zinc metal sector as the stock was the first to go into a major uptrend and hasbeen outperforming the indices since June 1999. After breaking out of the big bottom that it had formed in the past year, the stock was consolidating sideways between 16 and 23 for quite some time. Recently, the stock broke out of this sideways zone and has again gone into a fresh intermediate uptrend. Any minor decline in the coming week could be used by investors to add more long positions in the stock. The daily and weekly momentum indicators are bullish and higher levels will be seen in the stock in the next few weeks. Thus, investors may not only hold on to their long positions, but could add more long positions in the stock.

Currently, the rise in the stock is also accompanied by a rise in volume which is a bullish sign indicating aggressive buying in the stock. Thus, even though there is a correction within the indices, this sector has not been affected by it as the stocks in this sector are currently moving a divergent trend.

Indo Zinc

Indo Zinc has gone into a major uptrend in the lastmonth. The recent rise was accompanied by a rise in volume but there is some problem in the stocks. The stock was not traded regularly in the past two years. Such stocks must be avoided even though they are currently in a major uptrend and their relative strength is bullish. Investors must take a look at this aspect before jumping into any small stocks. Do not pick up stocks which were not traded regularly as they could be stuck up with the stocks in a bear market.

There are two more stocks within this sector namely Rose Zinc and Sunrise Zinc. There has been a rise in the activity in these stocks but both these stocks are not traded regularly at the Bombay Stock Exchange and are also trading below their base value. Avoid stocks which are trading below their base values as the base price will become the natural resistance when the stock rises. All investors who have purchased at the base value will be sellers when the stock moves closer to its base price.