After starting the week with a strong decline the bulls came back, forcing the bears to cover their shorts as the indices ended the week with some good gains. The Sensex has come closer to the large gap which it had created in the last week and this gap between 18,312 and 18,439 will now act as a strong resistance to the current strong pull back. A close past this gap will mean that the Sensex will test its last week?s high of 18,895, which is also the target to confirm an intermediate uptrend. The equivalent target for the Nifty and the CNX Mid Cap index to confirm an intermediate uptrend is at 5,545 and 7,631.40 respectively.
Most stocks, along with the indices, have dropped below their earlier intermediate bottoms in January, indicating that the major trend is down, and once the current rally confirms an intermediate uptrend, it will be an intermediate rally within a major downtrend. The earlier intermediate top for the Sensex is at 21,207 and this level will have to be crossed if the major uptrend has to be reinstated. The equivalent level for the Nifty is at 6,357.10.
In the last week, the Sensex gained 3.72% and the Nifty ended 3.57%. Among the sectors, the BSE Realty index was the largest gainer, ending 7.29% higher, and was followed by BSE Bankex which gained 7.13%. On the weaker side, the BSE Consumer Durable index lost 0.64% and was followed by the BSE Tech index which lost 0.30%.
All the indices and the stocks have exhibited a positive divergence on the daily charts, suggesting that the selling pressure has reduced considerably. Once the bulls are able to move past the gap indicated above, we are likely to see a higher level and also a start of a pre-budget rally. In the coming week, the big hurdle is at the gap between 18,312 and 18,439 by the Sensex.
The targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend is still far away and is at 18,895 and 5,545 respectively. The equivalent target for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 7,631.
In the last month, the Sensex made a low of 15,332 and the Nifty made a low of 4,448. On the monthly charts, these levels are the strong support levels for the indices and as long as these indices do not drop below these levels, a deeper correction is not expected. The trading volumes have been thin, indicating that the rise is just a rally, and even if the indices confirm an intermediate uptrend, the indices are not going to close past its all-time highs in this rally.
A few auto stocks look interesting and I will take a look at some of these stocks today. They are from the four-wheeler as well as from the two-wheeler segment.
Tata Motors was an underperformer last year and after making a major top in early 2007, the stock traded sideways with a negative bias. The relative strength line for the stock has been bearish as the stock was declining last year while the indices were rising. Now, we are seeing some improvement in activity of the stock as the short-term relative strength line has turned flat. The stock has a good resistance between the current 840 levels and only a close past 840 with a strong surge in trading volumes will change the major trend. Once this level is crossed, the stock will test the next resistance of 975 and 997, respectively. Thus any rise or any bullish activity in this stock is a good trading call.
Hero Honda
Hero Honda went into an intermediate uptrend in the last week but like most stocks in the automobile sector, the stock had been an underperformer last year and the relative strength was bearish. Recently, in the short term, the stock has started outperforming the indices and is now moving closer to its strong resistance zone between 785 and 810. A close past this strong resistance zone will result in the major trend of the stock turning up and traders and investors can look for long positions in the stock. If the stock is unable to close past this strong resistance zone in the current intermediate rise, then traders can look for profits at this zone while investors must stay away.
Mahindra is one of the weaker stocks as the stock remains in a major downtrend and has been exhibiting descending intermediate tops and bottoms. The relative strength line of the stock is weak and has been making lower tops and bottoms, indicating that the stock will take quite some time before its relative strength line improves.
Investors must stay away from the stock in this condition and the next intermediate rise by the stock is just a trading opportunity. The weekly MACD histogram has been making lower tops, indicating that the momentum is weak.
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