Banks stocks: Still steam left

Written by Mayur Shah | Updated: Sep 30 2007, 08:23am hrs
A vertical rise saw the Sensex and the Nifty cross new landmarks as the bulls made hay. The breakout from the sideways mode in the last week and a non stop ride by the bulls resulted in the fastest 1,000-point gain by the Sensex and the fastest 500-point surge by the Nifty. This is a great come back after the strong decline we saw in August. The new highs by the indices and many stocks confirm that the major trend is still up and the bull run continues. The Mid Cap index and the Small Cap index are also in the all-time high territory confirming that mid- and the small-cap stocks have also seen a strong rise. This rise was, however, selective and this is expected at these levels.

The Sensex gained 4.39% and the Nifty 3.80% in the last week. The CNX Mid Cap index gained 3.69% and the BSE Small Cap index gained 2.30%. Among the sectors, the BSE Metals index was the biggest performer gaining 8.84% and was followed by the BSE Bankex which gained 8.36%. On the weaker side, the BSE Reality index took a breather after the strong rise in the last week as it ended 0.05% lower in the last week and the BSE FMCG Index ended 0.39% higher.

The vertical rise seen in the past two weeks has resulted in strong gains by the indices and most of the stocks and a pause or a minor correction looks quite likely. The indices will have to pause for some breadth before they can move higher. Any minor decline with low volumes will be an opportunity to add to the long positions. Individual stocks have already been correcting and the only worry is that now I am seeing weak relative strength stocks like the Tech stocks go into a fresh intermediate uptrend and begin to move higher. Usually when this happens, an intermediate top is nearby, suggesting that the next correction could be an intermediate one.

The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are far away and are at 15,350 and 4,445. These levels will be raised after a minor decline is followed by a minor rise. The equivalent level for the CNX Mid Cap index to drop in the intermediate downtrend is at 6,267.

The indices took a support at their 200 DMA in the last intermediate correction and the bottoms formed during this correction are important levels. The Sensex made a bottom at 13,779 and the Nifty at 4,002. As long as these indices do not drop below these levels in the next intermediate correction, the major uptrend remains intact. The equivalent level for the CNX Mid Cap index is at 5,420.

I will take a look at the banking sector which does have some more steam left and traders do have some more opportunities in the coming week in this sector.

Bank of Baroda

Bank of Baroda is in the new high territory like the indices, confirming that the major trend of the stock is up. The relative strength of the stock has been rising and is likely to improve further in the coming week after the stock moves past its high of 331. The stock has been range bound in the last week between 310 and 331 and a move past 331 will mean higher level for the stock in the coming week. This breakout will be a good opportunity for traders. Investors must hold on to their long positions in the stock with a stop at 245. Trail the stop as the stock moves higher.

Indian Overseas Bank

Indian Overseas Bank is also in the new high territory like many stocks in the banking sector. The stock has been staying above its rising 30 WMA and has been making rising intermediate tops and bottoms confirming that the major trend of the stock is up. The relative strengthline has been slowly moving higher and will improve further once the stock closes past 151. In the last week, the stock has been moving between 135 and 151 and a breakout past 151 with good volumes will mean higher levels and a good opportunity for traders on the long side. Investors must hold on to their long positions with a stop at 107. Trail the stop as the stock moves higher.

Vijaya Bank

Vijaya Bank is in a major uptrend but has yet to move into the new high territory. The stock was an underperformer since 2005, but the performance has started to improve in the current intermediate uptrend as the stock has been outperforming the indices. The trading volumes have been very large which has been quite encouraging indicating that the bulls are quite active in the stock. The stock has a strong resistance between 75 and 77 where partial profits can be taken. The weekly MACD Histogram for the stock has been making new highs indicating higher levels in the next intermediate rise. Investors must hold on to their long positions with a stop at 47. Raise this stop as the stock makes higher bottoms.

For more details contact mayur_s@vsnl.com