Augmenting the rise

Written by Mayur Shah | Updated: May 31 2009, 05:52am hrs
The indices improved for the 12th successive week as the bulls have been in charge since March 6, 2009, as the indices have been zooming non-stop. The Sensex has closed past the 50% retracement level of the complete decline seen in the last bear run and is headed higher once it closes above the recent minor top of 14,930. Likewise, the Nifty has closed past the important resistance of 4,250 and is closer to its earlier minor top of 4,509.40. A close past these minor tops will suggest that the Sensex is headed towards the next target of 15,700 and the Nifty towards 4,800.

The Sensex gained 5.32% in the last week and the Nifty gained 4.97%. Among the sectors, the BSE Realty sector continued to lead the rise as the BSE Realty index gained 15.38% and the BSE Metals index followed suit gaining 11.68%. On the weaker side, the defensive sectors continued to remain weak as the BSE FMCG sector ended with a marginal gain of 0.77% and was followed by the BSE Health Care sector, which gained 1.74%.

The new targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are at 13,518 and 4,092 respectively. The equivalent target for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 4,954. Use these levels as stops for the long positions held as a drop below these levels will confirm an intermediate downtrend.

The US markets have been trading in a range in the past fourteen trading sessions as the DJIA has been trading between 8,185 and 8,660. A breakout on the upper side by the DJIA will help our indices to reach the targets suggested above. After the election results, we do not have any big triggers near by. The only triggers now are the comments and the announcements by the newly elected politicians. The targets suggested above will not be reached at one shot and minor declines in between will give traders an opportunity to trade on the long side. Though the intermediate uptrend is mature, traders and investors have been circumspect about the rise and the rise will continue till traders and investors become careless.

As suggested in the last week, most of the indices and stocks have tested their important weekly resistance levels and if the indices were to close past the last weeks highs, then stocks will have to surge higher towards the next resistance levels. A few stocks have already broken out of their strong weekly resistance levels and more will follow if the Sensex and the Nifty close past their recent minor tops.

On the other hand, if the Sensex and the Nifty are unable to close past the recent minor highs of 14,930 and 4,509.40 respectively, then the indices will make a lower minor top and suggest a start of an intermediate downtrend. This looks less possible unless there are some very weak signals from US markets. Investors must however wait for the next intermediate correction to pick up long positions. I will discuss some more stocks, which have still not attained their weekly targets and will participate in the rise if the indices close past last weeks high.

Bombay Dyeing

Bombay Dyeing has made a nice base formation between October 2008 and April 2009 and has broken out of this base with strong volumes. The major trend of the stock is up and the stock is still below its important weekly resistance of 490. While most of the stocks have reached their important weekly resistance levels, those which have yet to complete, will possibly do it now. In the short term, on the daily charts, Bombay Dyeing has a resistance at 356 and a close past this level will mean a higher level for the stock. Traders can look to trade the stock and it is important to trail the stop as the stock moves higher. A drop below the recent minor bottom of 284 will result in the stock dropping into an intermediate downtrend.

SRF

SRF was in a strong intermediate uptrend in the last week after the election results and is now consolidating between 134.50 and 116.40 and is trading in a sideways triangle on the daily chart. Usually a sideways triangle is a pause by the stock after the strong rise and will soon trigger a breakout. A move past the upper descending trendline on the daily charts happens at 131.70 and traders can look for long positions if this breakout happens. Keep a stop at 118 and trail this stop. The next target for the stock is at 152.

Voltas

Voltas is another stock, which has yet to reach its weekly resistance level of 127. The stock is currently facing a resistance at the first resistance of 105 and a close past this level in the coming week will mean the stock will head to the next target of 127. This will happen if the indices also make new highs in the coming week. Currently, on the daily chart, the stock is trading in a sideways triangle after the strong rise after the election. An upward breakout above 101.20 will mean higher levels and traders can look for long positions.

For more details contact mayur_s@vsnl.com