The indices took support at the ascending trendline and even though the Nifty and the CNX Mid Cap index closed below their intermediate downtrend targets for one day, the Sensex just dipped below its target of 16,589 on an intraday basis but did not close below it. The strong bounce back in the last week suggests that the intermediate trend could be possibly still up. This will be confirmed once the indices close past their recent minor tops. The Sensex has a minor top at 17,735, the Nifty at 5,298.85, and the CNX Mid Cap index at 7,192.40.
Even if these indices are able to close past these levels, the intermediate uptrend will be said to be going on since March 18. On the other hand, if the indices are not able to close past the earlier intermediate rise in the coming week and drop below the important ascending trendline from the recent minor bottoms, then the intermediate trend will be said to be down and the downtrend would have started from May 5.
Many stocks along with the indices have exhibited a narrow range bar, suggesting a pause and a move past Friday?s high will mean higher levels, while a drop below Friday?s low will mean a start of a minor correction. Also, in the last week, not all sectors and stocks have been participating in the rise and unless they join the party, the bulls could find it difficult to take the indices past the earlier minor tops. Thus, keep a close watch on the indices and the weak sectors in the coming week.
The intermediate downtrend will now be confirmed if the Sensex drops below 16,626, the Nifty below 4,932, and the CNX Mid Cap index below 6,705. The earlier intermediate tops for the Sensex is at 18,496 and for the Nifty it is at 5,545 and unless these levels are crossed in the current intermediate rise, the major trend remains down. The equivalent level for the CNX Mid Cap index is at 7,814.
The indices ended higher in the coming week, as the Sensex gained 4.17% and the Nifty gained 3.51%. Among the sectors, the BSE Metals index was the largest gainer ending 9.27% higher, and was followed by the BSE IT Sector, which gained 5.49%. On the weaker side, the BSE Auto sector ended with a small gain of 0.71% and was followed by the BSE Oil and Gas index, which gained 1.88%.
The trading volumes remain below their 50 DMA and the weak volume action in since the intermediate rally started on March 18 remains thin, indicating that the current rise is a corrective rise within the major downtrend.
In the coming week, I will take a look at the capital goods sector, which has been the weakest in the current intermediate rally. If the current intermediate uptrend ends, these stocks will again make new lows and will provide traders with a good trading opportunity on the downside.
BHEL
BHEL is one of the few stocks, which has not participated in the current intermediate rise and is currently in an intermediate downtrend. The stock has been also in a major downtrend and the relative strength is weak, suggesting that the stock is underperforming the indices. The stock is in a minor rise within the intermediate uptrend and once the indices start correcting, BHEL will also correct and soon test the recent lows of 1,570 and also fall below it. Thus, position traders must look for short positions once the current minor trend ends. The only bullish sign seen as of now is that the weekly MACD Histogram is exhibiting ascending bottoms, indicating that the momentum on the downside is declining, but this does not mean that investors must look for bottoms and start picking long positions.
Siemens is another stock in the capital goods sector, which is exhibiting a weak relative strength and is also in a major downtrend. The relative strength line for the stock has made a two-year low, indicating that the stock has been heavily underperforming the indices since last October. The major trend remains down as the stock has been exhibiting descending intermediate tops and bottoms and has been staying below its 30 WMA. Traders can look to take up short positions once the stock dips from the current minor uptrend as the intermediate trend remains weak. Investors must continue to stay away from weak relative strength stocks. Wait for the indices and the stocks to bottom out before taking fresh long positions.
ABB
Majority of the stocks in the capital goods sector are in a major downtrend and ABB is no exception. The stock has been currently holding on to the strong support zone between 1,000 and 1,035 and a close below this support zone will result in more decline for the stock as the next support level for the stock is at 850. The relative strength line remains weak as it is making new lows and though the MACD Histogram is exhibiting a bullish divergence, but this only means that the rate of decline by the stock is reducing. But unless there is an improvement in the money flow indicators and the relative strength line, investors must stay away.
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