Once the Budget was out of the way, the indices again started to follow the world markets as they have been doing till now. The indices were trading in a sideways triangle and on the Budget day they broke down from the sideways triangle as the intermediate downtrend gained momentum. The major trend of the indices and most of the stocks is down as they have exhibited descending intermediate tops and bottoms. The Sensex and the Nifty are closer to their earlier intermediate bottoms of 15,332 and 4,448 and these levels will be tested soon. These are important levels and these indices will have to end the current intermediate downtrend above these levels if the major trend has to remain sideways for a few months. However, with more and more frontline stocks dropping below their intermediate bottoms made on January 22, the indices are likely to follow suit.
We have seen strong declines on three of the four trading days in the last week as the Sensex lost 9.47% and the Nifty lost 8.65% in the last week. All the indices ended in the red as the BSE Realty index was the largest loser, ending 19.24% lower and was followed by the BSE Bankex which lost 16.43%. The BSE Healthcare index was the least affected as it ended 2.51% lower and was followed by the BSE FMCG index which lost 2.85%.
With the indices declining vertically in the past few days, the targets for the Sensex and the Nifty to get back into a fresh intermediate downtrend are far away and are at 18,138 and 5,369 respectively. The equivalent target for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 7,322. These levels will be lowered after the indices exhibit a minor rise, followed by a minor decline.
The earlier intermediate tops for the Sensex and the Nifty are at 18,896 and 5,546 and the next intermediate uptrend will have to take the indices past these levels for the intermediate uptrend to be reinstated. The equivalent level for the CNX Mid Cap index to get back into a major uptrend is at 7,814.
The leaders in the four-year bull markets have also been the leaders in the current bear market. The realty stocks, banking sector and the capital goods sector have been leading the current downtrend. Most of the stocks in these sectors have already dropped well below their intermediate bottoms made on January 22 and are strongly trending down. Investors must use rallies in these stocks to liquidate their long positions as they will continue to lead on the downside in the current major downtrend. Also, though the activity has shifted to defensive sectors like pharma and FMCG, not all stocks in these sectors are bullish and investors will have to be careful while switching over from weak sectors to strong sectors.
Today, I will take a look at the banking stocks as they are now one of the weakest,, and will lead the decline if the indices drop below the earlier intermediate bottoms as suggested above.
SBI is now in a major downtrend as the stock has dropped below its earlier intermediate bottom of 1,905 attained on January 22 and is likely to slide further in the current intermediate downtrend. The stock was holding on nicely till the past few weeks, but since the banking index dropped in a major downtrend, most of the stocks in this sector are in a major downtrend. The stock has supports at 1,745, 1,601 and 1,378. The weekly MACD histogram for the stock has made lower bottoms, suggesting that the stock?s momentum is on the downside and could see lower levels. The stock is already below its 30 WMA, and the relative strength line for the stock could weaken if the stock declines further.
ICICI Bank was the first bank to be affected by the subprime problems. The stock has witnessed a sharp fall in the past few trading sessions and the stock has come very close to its earlier intermediate bottom of 806. A drop below this level in the current intermediate downtrend will mean that the major trend of the stock is down. The relative strength line for the stock has already turned bearish.
The relative strength line has been exhibiting descending tops and bottoms, suggesting that the stock is underperforming the indices. The weekly MACD indicator has dropped below its trigger line, indicating a weak momentum and suggesting that the stock will follow suit.
Bank of Baroda is another stock in the banking sector which has dropped sharply in the current weak market. The stock has come closer to the strong support zone between 280 and 300 and we will have to wait to see if this support holds on or not. The relative strength line which had improved in the earlier intermediate rise has started to weaken. Like all the stocks discussed today, the momentum indicator has turned weak, indicating lower levels for the stock. For the major uptrend to continue, the stock will have to take a support at the strong support zone of 280-300.
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