A strong bounce back by the indices on Thursday and Friday wiped out all the loses of the first three days in the last week as global markets have started to improve after oil prices cooled off. The chart of oil suggests that it has made a double top formation, indicating an intermediate top formation, and some cooling off in the next few weeks. Boiling oil was one of the reasons for the current intermediate downtrend since March and now, with oil charts forming an intermediate top, an intermediate rally is likely to be seen here and other markets around the world.
Locally, we have another big hurdle on July 22 and this is the trust vote by the government. Once this hurdle is gone, we could either see the continuation of the gains in the past two trading days or if the government is not able to get 272 seats, than we could see one more sharp fall and a continuation of the intermediate downtrend. The targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend are at 14,066.36 and 4,215.50 respectively. The equivalent target for the CNX Mid Cap index is at 5,405.65.
The intermediate downtrend is more than two and half months old and if the d-day on the July 22, passes by with the government getting the required number of seats, than we could see the recent minor bottoms attained on July 16, will also become an intermediate bottom. The daily momentum indicators for the indices and many stocks have been exhibiting a bullish divergence indicating that the bears are becoming weaker. Also, the strong rise in the past two days suggests some bear covering and a possibility of an intermediate rally.
The earlier intermediate top for the Sensex is at 17,736 and for the nifty it is at 5,298.85. These levels are quite far away and unable for the indices to cross in the next intermediate rise also suggesting that the next intermediate rise will be a rally within the major downtrend. The equivalent level for the CNX Mid Cap index to get back into a major uptrend is at 7,192.40.
In the last week, the Sensex gained 1.23% and the nifty ended 1.07% higher. On the bullish side, the BSE Oil & Gas sector was the biggest gainer ending 3.89% higher and was followed by the BSE Capital Goods sector gaining 3.45%. On the weaker side, the BSE IT index was the largest loser ending 8.37% lower and was followed by the BSE Metals index which lost 8.21% lower.
With the possibility of an intermediate rally, the beaten down sectors like the banking sector, the reality and the capital goods sectors are the ones to lead the rally. Other sectors will than follow. Usually an intermediate rally retraces about 38.2% to 50.0% of the earlier intermediate decline, but in some cases we also see a retracement of 61.8%.
I will today take a look at some of the banking stocks which are likely to lead in the intermediate rally.
State Bank of India
SBI is a major downtrend as the stock has been staying below its falling 30 WMA and has been exhibiting descending intermediate tops and bottoms. Currently, the stock went into a fresh intermediate uptrend by closing past its target of 1,276.40 and is in an intermediate rally ahead of the indices.
This suggests that the stock will lead the rise in the intermediate rally. The immediate target for the stock in the current intermediate rise is between 1,450 and 1,500 which are likely to be attained on the event date of 29th. July. As the major trend of the stock is down, the current intermediate rise is just a trading activity on the long side for swing traders. Keep a stop at 1,217 and trail the stop as the stock moves higher.
Bank Of India
BoI has exhibited ascending minor bottom and a close past 260 on Monday will confirm a start of an intermediate uptrend. Like most of the stocks, the major trend of the stock remains down as the stock is trading below its 30 WMA and is exhibiting descending intermediate tops and bottoms.
Once the stock closes past 260, it will be headed towards the target of 280-290 till the next event date of July 25. Swing traders and position traders must trade the stock on the long side with a stop at 243. Trail the stop as the stock moves higher. Investors must stay away from the stock as the major trend remains down.
Axis Bank came close to confirming an intermediate uptrend as it touched its earlier minor top of 700 on Friday. We require the stock to close past this level to confirm an intermediate uptrend. This is likely to happen soon and the stock is headed towards the target of 775-790 on the event date of July 23. Traders must keep a stop at 640 and trail the stop as the stock moves higher. Again, as the major trend of the stock is down, investors must stay away from the stock.
For more details contact mayur_s@vsnl.com