The intermediate downtrend was confirmed as the Sensex and the Nifty have exhibited descending minor tops and bottoms. And, the high made by the Sensex on October 30 is the intermediate top. These indices have already broken the important support from the ascending trendline, which has been intact since August 2007, and this also suggests that the Sensex and the Nifty are in a corrective mode and will require some more time before we see a new intermediate uptrend. The CNX Mid Cap index is still in an intermediate uptrend as mid-cap stocks were active in the past two weeks while the frontline stocks had already started correcting.
The daily momentum indicators for the indices have been making descending tops and bottoms in the last month even as the indices made new highs, suggesting that the momentum was already weakening, and now we are already seeing the prices follow the momentum. Currently, the momentum has been higher on the downside, indicating further downside before the indices make an intermediate bottom.
The Sensex and the Nifty have already dropped below their earlier minor bottoms of 18,333 and 5,477 and a close below these levels will confirm a double top by these indices, giving a minimum target of 16,700 for the Sensex and 4,973 for the Nifty. There are a number of supports before these levels will be reached and these supports for the Sensex are at the gap between 17,704 and 17,910. The next support is at 17,171. The Nifty has supports at 5,070 and 5,000.
The major trend for the Sensex and the Nifty remain up, as the earlier intermediate bottoms for these indices are far away at 13,779 and 4,002 respectively. The CNX Mid Cap index has an earlier intermediate bottom at 5,420.
In the last week, the Sensex ended 4.29% on the lower end and the Nifty lost 5.04%. The CNX Mid Cap index was 4.08% lower. Among the sectors, the BSE Realty index was the largest loser ending 7.02% lower and was followed by the BSE Power sector, which lost 6.74%. All the sectors ended in red and the least loser was the BSE Auto sector which ended 0.52% lower and was followed by the BSE Health Care index which lost 1.91% lower.
The targets for the Sensex and the Nifty to get back into an intermediate uptrend are at 19,967 and 5,982. These targets will be lowered after the current minor rise is followed by a minor decline. Some selective auto stocks are holding out and could buck the current intermediate downtrend. Traders can look to trade long in some of these stocks. As the intermediate trend of the indices is down, it will be difficult for these stocks to move higher, if the indices witness a sharp fall. Hence traders must use stops for any long positions taken up.
Bajaj Auto went into an intermediate uptrend in the last week even as the indices were dropping into an intermediate downtrend. The weekly MACD indicator for the stock has been making higher tops indicating that the stock will follow suit soon and soon the stock will test its earlier intermediate top of 2,679 and move higher. Earlier, in the last week, the stock had taken support at the 30 WMA and went into an intermediate uptrend. The stock was underperforming since the beginning of 2006 and since the last week, the stock had started to exhibit an improvement in its relative strength. The long-term relative strength line is still bearish and the stock will have to do a lot of work before this improves. Hence, the current intermediate rise by the stock is just a good trading opportunity. Investors can get in only when the relative strength line signals a buy.
Escorts
Escorts is another stock in the automobile sector which looks interesting. The stock confirmed a major uptrend in the last week after closing past its earlier intermediate top of 135.90. The stock made it into the ?new high? territory and after correcting it has closed at this support.
The trading volumes have been quite strong, indicating that the bulls are quite active in the stock. The weekly MACD histogram for the stock are making rising tops and bottoms, indicating that the momentum is still strong and higher levels will be seen by the stock. The relative strength line for the stock has made a double bottom formation and this is bullish, suggesting that the stock has been outperforming the indices. Short-term traders and position traders can pick up long positions in the stock near Friday?s close with a stop at 130.80.
Mahindra & Mahindra
Mahindra & Mahindra is trading sideways for the past few months and has been under performing the indices. The relative strength line for the stock is drifting down and has been bearish. The stock will have to move past 860 in the next intermediate rise if the major trend of the stock has to turn up. As only few stocks in the auto sectors are witnessing a bullish activity, investors and traders will have to be selective and avoid stocks which are exhibiting a bearish relative strength.
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