Friday’s strong up day has raised the hopes for the bulls, as the indices have now exhibited ascending minor bottoms, suggesting that the intermediate trend is up. This will be confirmed once the Sensex closes past its target of 18,491 and the Nifty past 5,400. The equivalent target for the CNX Mid Cap index to confirm an intermediate uptrend is at 7,814.
The Sensex and the Nifty had dropped below their earlier intermediate bottoms in January, suggesting that the major trend is down. A lower intermediate top in the current intermediate rise will confirm that the major trend of these indices is down. On the other hand, if the Sensex and the Nifty were able to move past its earlier intermediate top and all time high of 21,207 and 6,357, than the major uptrend will be reinstated.
Majority of the markets around the world have exhibited a descending intermediate top, indicating that the major trend is possibly down. This will be confirmed once most of the markets exhibit descending intermediate top in the next intermediate uptrend. Friday’s strong rise by the indices was not accompanied by a strong volume action, which also suggests that the bullish action is muted and the Sensex is headed towards the next important resistance of 18,920-18,930 and the Nifty towards the 5,640.
Auto and Tech stocks have lead the rise on Friday. These were the most underperforming sectors and these sectors had the lowest long positions held by traders. Thus it was quite easy for the bulls to move these stocks. Majority of the stocks in this sectors are in a major downtrend and it will take quite some work by the bulls to move them back into a major uptrend. The BSE Auto sector lead the rise gaining 3.32%, and was followed by the BSE IT Sector, which gained 3.26%. On the weaker side, the BSE Reality sector was the weakest, as it lost 11.89% and was followed by the BSE Capital Goods sector, which lost 5.86%. The Sensex ended with a marginal gain of 0.70%, and was followed by the Nifty, which lost 1.23% in the last week.
The short term money flow indicator for the indices have made a higher bottom, indicating some more improvement by the indices in the coming week. In the medium term, unless we see a rise with a strong surge in trading volumes, the indices are likely to exhibit lower intermediate tops and traders must look for small profits in the long positions held.
I will take a look at some frontline tech stocks today and see what these stocks have in store for the bulls.
Infosys has been in a major downtrend since last February, as the stock has been exhibiting descending intermediate tops and bottoms and has been staying below its falling 30 WMA. The stock has been exhibiting a weak relative strength, indicating that the stock has been underperforming till now and will have to do a lot of work to get back into a major uptrend. The stock will have to move past its earlier intermediate top of 1840 in the current intermediate rise to move into a major uptrend. The MACD histogram has been exhibiting rising bottoms, indicating that the momentum on the downside is reducing, but the stock will have to do a lot of work before it can get back into a major uptrend. The current intermediate rise by the stock is just a trading opportunity for traders on the long side and investors must currently stay away. Wait for the stock to exhibit rising intermediate bottoms and the money flow indicator to improve, before getting back into the stock.
Like Infosys, TCS has also been in a major downtrend and has been exhibiting descending intermediate tops and bottoms and has been staying below its falling 30 WMA. Stocks staying below their 30 WMA suggest that they are in a major downtrend and all intermediate rallies by the stock have to sort sold. Intermediate rallies are smaller that the intermediate declines and traders taking up long positions in the stock must keep this in mind and look for profits soon. With the major trend down and none of the indicators positive, investors must stay away from the stock. They must use the rally to book profits in some of the positions held.
Wipro went into a major uptrend in December 2007, when the stock closed past its earlier intermediate top of 515. However, at that time, the relative strength line was still bearish and was staying below its moving average, suggesting that the major uptrend was not strong and the stock was underperforming the indices. The stock dropped below its earlier intermediate downtrend in January and this suggests lower levels. The stock’s intermediate trend will be turning up once the stock moves past 448 and this is just a trading opportunity on the long side.
?For more details contact mayor_s@vsnl.com