The intermediate trend turned down as the indices continued to exhibit descending intermediate tops and bottoms, indicating the continuation of the major downtrend and the bear market, which had started in January 2008. The bearish conditions prevail as the indices did not respond to a number of bullish news, like the NSG waiver, lower crude prices, reduction in the inflation for a third successive week, lower steel prices and a rise in the IIP numbers. All this suggests that the undertone remains bearish as FII’s remain sellers and we will soon see lower levels by the indices.
The Sensex closed below the important support of 14,002 and is headed to test its earlier intermediate bottom of 12,514. There is strong support at 4,200 and a close below this level will mean lower levels towards 3,790. A drop below 4,200 by the Nifty and below 14,000 by the Sensex will result in the breaking of the trendline of the bearish “Head and Shoulder’ formation, indicating lower levels and a test of the earlier intermediate bottoms. The frontline pivitols like Reliance and Tisco have lead the decline and other stocks are likely to follow once the indices decisively break the neckline and close below it.
The Sensex lost 3.33% in the last week and the Nifty ended 2.85% lower. Among the sectors, the BSE Metals index leads the decline, ending 7.67% lower and was followed by the BSE Realty sector, which lost 5.73%. The defensive stocks registered a lower loss as the BSE FMCG index ended 0.46% lower and was followed by the BSE Auto sector, which lost 0.78%.
The indices have now made a lower intermediate top in the last week. The Sensex has made an intermediate top at 15,107 and the Nifty at 4,558. These indices will have to move past these levels in the next intermediate rise if the major trend has to turn up. The equivalent level for the CNX Mid Cap index is at 5,880. As the indices have been declining for the past four successive days, these are also the targets for these indices to get back into an intermediate uptrend.
After trading sideways for more than a month, the Sensex has dropped below the important support of 14,002 and the Nifty is very close to its support of 4,200. A close below this level will result in a trending mode and traders can look for short positions after the first minor rise. A close below these levels will also complete the bearish Head and Shoulder pattern for these indices, giving the Sensex a minimum target of 12,420 on the lower side and 3,950 for the Nifty. It is quite likely that the indices will take support at this neckline and we will see a minor rise in the initial part of the next week before the indices and the stock ultimately break the neckline. I will today take a look at a few pivitols as these stocks are likely to take a lead on the downside if the indices were to break below the strong supports.
Reliance Inds
Reliance Inds has made a new 52-week low on Friday and is weaker than the Sensex in the current intermediate decline. The stock has completed a bearish Head and Shoulder pattern and has dropped below the neckline of 2,057, giving the stock a target of 1,804 on the downside. The next important support on the weekly chart is between 1,780-1,785 and with the head and shoulder target very near to this level, traders can look for profits in the short positions at this support zone. Use a minor rise in the coming week to add to the short position. Investors must stay away from the stock as the major trend is down.
ICICI Bank has formed a similar bearish pattern like the indices and is currently standing at the neckline of the bearish Head and Shoulder pattern. A close below 630 will confirm a break of the neckline and this will result in the stock heading towards the target of the 480 level, indicating that it will drop below its earlier intermediate bottom of 515. Traders must keep a close watch and must look for short positions once the stock breaks below the neckline of the Head and Shoulder pattern. The stock has been exhibiting descending intermediate tops and bottoms and is exhibiting a bearish relative strength and investors must stay away from the stock.
Reliance Capital is another stock, which is exactly at the neckline of the bearish Head and Shoulder pattern, and a close below 1,201 will confirm the break of the neckline of this pattern. A close below this level will give the stock a target of 9,30 on the lower side. The major trend of the stock remains down and investors must stay away from the stock.
It is quite likely that the indices and some of these stocks, which are at their neckline, will first exhibit a minor rise in the coming week before breaking the neckline. Traders must keep a close watch at the neckline and look for short positions, especially after a minor rise in the coming week.
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