Banking on a firmer ground

Written by Mayur Shah | Updated: Nov 30 2008, 07:16am hrs
Terror struck again and our markets failed to rally like most of the markets around the world. The markets were closed on Thursday as the Sensex ended 2.0% higher and the Nifty gained 2.29% in the last week. Among the sectors, the BSE Realty sector continued to take a beating, as the BSE Realty index was the largest loser ending 5.13% lower and was followed by the BSE Capital Goods index, which lost 2.58%. On the bullish side, we had the CNX IT sector gain 5.22% and was the largest gainer and was followed by the BSE Power sector, which gained 2.71%.

Though the indices have seen marginal gains in the last week, they have just stayed sideways as the Sensex has been staying between 9,182 on the upper side and 8,649 on the lower side. The Nifty has been staying between 2,633 and 2,791 in the last week. A move out of the trading range will result in the indices starting a trending mode. A breakout on the upper side could be expected in the coming week after the army flushes out the terrorists, possibly by Friday night or Saturday morning, we may see the indices moving higher and starting a rally like most of the markets around the world. On the other hand, if the indices were to drop below the lower supports, than we could see a retest of the lows made on October 27.

The first resistance level for the Sensex is at 9,430 and for the Nifty it is at 2,825 and once the indices close past these levels, we could see higher levels to 10,700 and 3,160 respectively. The targets for the Sensex and the Nifty to get back into an intermediate uptrend are far away and are at 10,571 and 3,161.25 respectively, the equivalent level for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 3,867.50.

On the weekly charts, the Sensex has a resistance at 11,800 and 12,350 and the Nifty has a resistance at 3,515 and 3,725. Thus, only after the indices are able to cross the resistances on the daily charts, these resistances will come into play. As these are dynamic resistance levels, these levels will move lower as time passes and I will indicate new resistance levels in the next week.

The earlier intermediate top for the Sensex and the Nifty are quite far away and are at 15,580 and 4,650 respectively. The next intermediate rise will be a rally within the bear market. The equivalent level for the CNX Mid Cap index is at 6,016. This means that investors will have to wait for the next intermediate decline and see if the intermediate decline forms a higher intermediate bottom, before picking up long positions. Thus, traders must trade the next rally while investors must stay aside for some more time. They will soon get an opportunity, possibly after the next intermediate decline.

Apart from the improvement in tech stocks in the last week, PSU Banking stocks have seen an improvement and I will discuss some of these stocks today. Traders can look to trade these stocks on the long side, if a rally by the indices materialises.

Bank Of India

Bank Of India has been getting a support above the earlier minor bottom of 195 and will confirm an intermediate uptrend once the stock is able to cross 255. As the major trend of the indices and the stock is down, the intermediate uptrend is just a trading activity on the long side.

On the daily chart, the stock has a resistance at 254 and once the stock crosses 255, it can move to the next resistance of 289. In between, the stock will face with a small resistance of 269. The earlier intermediate top of the stock is at 308.50 and only if the stock is able to move past this level in the intermediate rise, the major trend will turn up.

Union Bank

Union Bank has been exhibiting a bullish relative strength as the stock has exhibited a lower rate of decline since September as compared to the indices. Also, the stock is very close to its October highs and could be one of the first stocks to get back into a major uptrend if the indices start to rally in the coming week.

The earlier intermediate top for the stock is at 166.85 and a close past this level will confirm a major uptrend for the stock. The stock has already exhibited a higher minor bottom and is headed to the next resistance level of 165.40. Traders must look for profits here and only after the major trend of the stock turns up, investors can look for long positions.

Punjab National Bank

Majority of the stocks in the PSU Banking sector are exhibiting a bullish relative strength, as they have been declining at a lower rate as compared to the indices. PNB moved past its intermediate uptrend trigger of 460.20 on Friday on an intra day basis and a close past this level will confirm an intermediate uptrend.

Traders can look for profits at the resistance of 510. On the weekly chart, the stock has a resistance at 530. The stock will have to close past 542 to get back into a major uptrend.

For more details contact mayur_s@vsnl.com