The indices dropped into an intermediate downtrend in the last week, as they dropped below their respective intermediate downtrend targets. The decline in the last week was quite fast, as the Sensex wiped out almost all the gains registered in the last intermediate uptrend. Also, it has wiped out the gains for the past fourteen days, suggesting that the momentum on the downside is stronger than the momentum on the last intermediate uptrend. This suggests that the current intermediate downtrend will soon drop below the earlier intermediate bottom of 8,631 by the Sensex and 2,661 by the Nifty.
Currently as long as the indices remain above these levels, the large sideways mode continues. The largest loser among the sectors was the banking sector, as the BSE Bankex lost 14.45% and was followed by the BSE Metals index, which lost 11.16%. The Sensex ended 8.22% lower and the Nifty lost 7.19%. The sectors, which registered a lower percentage loss, were the BSE FMCG sector, which lost 1.42% and the BSE Auto sector, which ended 2.59% lower.
Though the indices have been moving in a large sideways triangle till now, the current intermediate downtrend has a strong momentum and could be poised to trigger a downside breakdown. The Sensex has supports at 8,700, 7,960 and 8,465.
The Nifty has supports at 2,680, 2,550 and 2,450. Once these supports are taken out, we will see a test of the October lows. However, as long as these supports remain intact, the indices are likely to remain in the sideways choppy range.
The targets for the Sensex and the Nifty to get back into an intermediate uptrend are at 9,696 and 2,970 respectively. These levels are far away and a minor rise followed by a minor decline will lower these targets. The equivalent level for the CNX Mid Cap index is at 3,518. The earlier intermediate tops for the Sensex and the Nifty are at 9,725 and 2,970 and these levels will have to be crossed in the next intermediate rise if the major uptrend has to be reinstated. The equivalent level for the CNX Mid Cap index is at 3,520. We are not seeing all sectors participating in the current intermediate downtrend.
The banking sector has lead the downside as more weakness in this sector is expected in the current downtrend. Traders must hold on the short position and can add more shorts in this sector. Other sectors will follow as the intermediate downtrend gains momentum. I will take a look at this sector today as it will provide traders with some opportunities in the coming weeks.
Bank of Baroda has dropped sharply in the last week and is closer to its first support of 219. The weekly MACD Histogram indicators have been exhibiting descending bottoms, indicating a higher momentum on the downside and lower levels once the support of 219 is taken out.
The next support to the stock is at 178 and this level is likely once the indices drop below their supports suggested above.
Position traders must hold on to their short positions with a stop at 234 and add more short positions near Friday’s close. Swing traders can also look for short positions in this stock.
Banking stocks were strong till October and had the indices bottomed out in October, they would have lead the upside. As this has not happened, these stocks have also started to breakdown and Bank of India has also dropped into an intermediate downtrend and is at the support of 216. A close below this level will result in the stock heading to the lower support of 190.
Again, like Bank of Baroda, the weekly MACD Histogram is making descending bottoms indicating a strong momentum on the weekly chart. This suggests lower levels in the intermediate downtrend and position traders can look for short positions with a stop at 228. Trail this stop lower as the stock moves lower.
Oriental Bank
Oriental Bank has made a new 52-week low and has a strong downside momentum, as the stock has dropped below its support of 114. It is now headed towards the next support of 88 as the momentum is the strongest. The stock has declined on four of the five days in the last week and the stop loss level for traders is far away.
A minor rise in the coming week will lower the stop and traders must wait for the minor rise before they take short positions. Lower levels towards 88 are expected and the relative strength remains quite bearish.
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