The intermediate rally, which had started on July 16 ended on August 12 and has lasted four weeks. The indices retraced just above 50% of their earlier intermediate decline and dropped below their respective targets on Thursday, confirming that the intermediate trend is down. Thus, after seeing four up weeks, the indices have again made a lower intermediate top and are headed lower.
The Sensex lost 2.92% in the last week and the Nifty ended 2.18% lower. Among the sectors, the BSE Bankex was the largest loser ending 6.65% lower and was followed by the BSE Realty sector, which lost 6.27%. On the bullish side, the BSE Oil & Gas sector ended 0.57% higher and was followed by the BSE FMCG index which gained 0.39%.
The indices continue to exhibit descending intermediate tops and the recent intermediate tops attained by the indices on August 12 is also the trigger level for the indices to reinstate the intermediate rise. These levels for the Sensex and the Nifty are at 15,579.78 and 4,649.85 respectively. The equivalent level for the CNX Mid Cap index is at 6,015.90. A minor rise in the coming week followed by a minor decline will lower these targets.
Few stocks have already dropped into a fresh intermediate downtrend and if more stocks follow suit in the next few days, the intermediate downtrend will gain momentum. The banking and the realty sector have been leaders in the rally and now they are again leaders in the intermediate downtrend. Majority of the stocks in these two sectors have dropped into a fresh intermediate downtrend and traders can look for some short positions in these stocks.
Select defensive sectors like the pharma and the technology sector have witnessed a bullish activity in the past two trading sessions and as the intermediate trend is now down, these sectors will outperform the indices and the other sectors.
The current intermediate rally was started with oil softening and a majority of metals also correcting. In the past two trading sessions, we are seeing that oil has taken a support at its important support zone and could start a fresh intermediate uptrend. Likewise, metals are also bouncing back and we could again see a rally in these commodities. This could result in the intermediate downtrend gaining momentum. With the realty sector having started an intermediate correction, traders can look at these stocks to trade on the short side. A lower minor top in the coming wee will give a better opportunity on the short side.
DLF was listed in July 2007 and after attaining a high of 1,225 in January, the stock has been in a sharp major downtrend. The stock has been exhibiting descending intermediate tops and bottoms and has been staying below its 30 WMA. This means that the stock is headed lower in the current intermediate downtrend and could soon test its earlier intermediate bottom of 350. On the bullish side, we are seeing that the weekly MACD Histogram is making rising bottoms, indicating that the strength of the bears is declining and if the stock is able to make a higher intermediate bottom in the current intermediate decline, investors could look for buying the stock in the next intermediate rise. However, currently, they will have to wait for the current decline to end and should be in no hurry to get in.
HDIL
HDIL is another stock, which is in a major downtrend and has been exhibiting descending intermediate tops and bottoms since January. The relative strength of the stock is bearish, indicating that the stock has been underperforming the indices and investors must currently stay away from the stock. Like, DLF, the weekly MACD Histogram for the stock has been exhibiting a positive divergence, indicating that the bears are getting weaker. But this does not means that investors must jump in. Wait for the stock to exhibit higher intermediate bottom before getting in. Also, the relative strength line must start to bottom out before investors look for long positions. Currently, it is just a trading opportunity on the short side.
Parsvnath
Parsvnath is poised to drop into an intermediate downtrend along with other stocks in this sector. The major trend of the stock is down and the relative strength weak and investors must stay away currently. Like the other stocks discussed today, the weekly MACD Histogram is making rising bottoms, but a positive divergence it not a trigger. It just suggests that the rate of decline is slowing. However, we require a trigger in the form of strong volumes on up days before we start looking for long positions in the stock. Traders can look to go short in the coming week in a minor rise.
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