Banking on the bulls

Written by Mayur Shah | Updated: Aug 31 2008, 08:19am hrs
The indices corrected 50% of the earlier intermediate rise and bounced back smartly on Friday, indicating a possibility of an intermediate uptrend. The intermediate downtrend began on August 12 and is about two weeks old. If the indices were to make a higher intermediate bottom here, we have the possibility of a start of a major uptrend. The level to be crossed for the Sensex to go into an intermediate uptrend is at 14,673 and the Nifty will have to go above 4,399. The equivalent level for the CNX Mid Cap index to get back into an intermediate uptrend is at 5,695.

The major uptrend is likely if these indices make a higher intermediate bottom here and close past their earlier intermediate tops. The earlier intermediate top for the Sensex and the Nifty are at 15,580 and 4,650 respectively. The equivalent target for the CNX Mid Cap index is at 6,015.90.

Apart from the higher intermediate bottom, we will keep a close watch on the volume action in the coming week. The money flow has to turn up i.e. we must see strong volumes on up days and low volumes on down days. The Bollinger Bands have been moving sideways and suggest that the volatility has been falling and the indices are likely to stay sideways for the next few weeks. On Friday, the trading volume was strong and this has to continue for the major trend to turn up. Otherwise, it will mean the continuation of the corrective mode. The volume and the price action in the coming week will be the decider.

In case the intermediate uptrend is confirmed, we will keep a watch on the rate of rise. For the major trend to turn up, the momentum will certainly have to pick up on the up side and the last two weeks decline must be crossed at a faster rate. Investors and traders must keep a close watch at the rate of change in the coming week.

In the last week, the Sensex gained 1.13% and the Nifty ended 0.752% higher. Among the sectors, the BSE Bankex was the largest gainer, ending 5.32% higher and was followed by the BSE Auto index, which gained 4.21%. On the weaker side, the BSE Oil & Gas index ended 2.84% lower and was followed by the BSE Capital Goods sector, which lost 0.32%.

In the last week, the banking sector took a lead and many stocks in this sector have gone into an intermediate uptrend. More sectors will have to start going into a fresh intermediate uptrend if the intermediate trend of the indices has to turn up. If scores of sectors join the intermediate uptrend, it is likely that the indices could cross their earlier intermediate tops. On the other hand, if we continue to see listless action in the coming week, then the corrective mode remains intact.

With strong activity in the banking sector, I will discuss some stocks in this sector today.

State Bank of India

State Bank of India went into an intermediate uptrend on Friday, as the stock saw a strong bullish action on Friday. The stock has now exhibited a higher intermediate bottom and a possibility of the major trend turning up. The weekly MACD Histogram has been exhibiting a positive divergence, indicating that the bulls are becoming stronger. A confirmation of the major uptrend will be had if the stock closes past its earlier intermediate top of 1,639 in the current intermediate uptrend. Currently, investors must pick up long positions with a trading perspective and must switch over to investments if the stock and the indices confirm a major uptrend.

Axis Bank

Axis Bank also went into an intermediate uptrend, as the bulls latched on to the banking stocks on Friday. I would like to see a follow-up in the action in the coming week if the stock has to go into a major uptrend. This will be confirmed if the stock closes past its earlier intermediate top of 802 in the current intermediate rise. The zone between the 802 and the 30 WMA is a strong resistance level and will be crossed only if the major trend of the stock is turning up. Like SBI, investors must pick up long positions with a trading perspective and switch over to investments if the major uptrend is confirmed.

Union Bank

A majority of the banking stocks are currently exhibiting a higher intermediate bottom and the weekly MACD Histogram has been exhibiting a positive divergence, indicating that the bulls are getting strong and the bears are getting weaker. Union Bank also went into an intermediate uptrend on Friday and the trading volume on Friday was quite strong. I would like to see this action continue in the coming week. The earlier intermediate top for the stock is at 156 and a close past this level with strong volumes will confirm a major uptrend. The stock has a strong resistance at this level and from the 30 WMA. Pick up long trading positions and switch over this position to investments if the major uptrend is confirmed.

For more details contact mayur_s@vsnl.com