Bears take bulls by the horns

Updated: Oct 30 2005, 05:30am hrs
The bulls are bleeding as the intermediate downtrend by the indices gained momentum. Most of the stock markets around the world have been in a strong decline and our markets are no exception.

Many mid cap stocks have dropped into a major downtrend and some of the frontline stocks have followed suit indicating that the bull markets which had started in May 2004 may have ended on the October 5.

The global meltdown has affected most of the markets around the world and FFI's have been big sellers in the past few weeks. Unless this trend changes, the indices are poised to slip into a major downtrend.

A major downtrend will be confirmed once the Sensex drops below its earlier intermediate bottom of 7537 and the nifty below 2300 levels in the current intermediate downtrend.

The CNX Mid Cap-100 index will have to drop below 3054. These indices are inching closer to these levels and unless the current intermediate downtrend ends soon, these indices are likely to drop into a major downtrend.

The mid cap stocks are in fact in a strong decline since the September 21 and most of these stocks have not recovered. Many of these stocks have dropped well below their earlier intermediate bottoms suggesting that the major trends of these stocks is down and the mid cap index will follow suit soon.

The market breadth has been extremely weak on most of the days as bull liquidation continues unabated. The number of stocks declining has been almost three times higher than the advancing stocks on most of the days as small cap and mid cap stocks have led to the decline on the downside.

The number of stocks making a new high have dwindled and the stocks making a new low has been rising resulting in the new high - new low index falling below its zero line. Usually in a bull market, this index stays above the zero line.

Small investors are the most affected in this decline as most of them have been trapped at higher levels in the mid cap and small cap stocks. These stocks have declined quite sharply and as most of the investors not ready to take small losses, they will now end up with bigger losses in their folios.

Very few stocks have survived in the current intermediate downtrend and unless the frontline stocks bounce back soon, the decline in the indices will continue. I will take a look at a few pivotals today.

ONGC

ONGC is one of the pivotals which is currently holding on and has taken a support at its 30WMA. A fall below this level will raise the possibility of the stock dropping into a major downtrend and more declines for the indices.

On the other hand, if the stock is able to bounce back from this strong long term moving average, and is able to move past 965, the intermediate trend will turn up. The weekly MACD for the stock has dropped below its trigger line indicating that the momentum is on the downside. The relative strength line has started drooping and more weakness in the coming week will trigger more stops and lower levels for the stock. Traders can keep a watch on the stock and trade on the side of the breakout. Investors must also keep a close watch and if the stock declines further, they must book profits.

Reliance Inds

Relaince Inds is one of the few pivotals which has been exhibiting a bullish relative strength. The stock has been in an intermediate downtrend, but the rate of decline by the stock in the intermediate downtrend is lower than the rate of decline by the indices. As a result the relative strength line of the stock has been rising. The weekly MACD line for the stock has dropped below its trigger line suggesting of weakening momentum. Unless the stock bounces back soon, more declines for the stock and the indices are likely. Investors must remember that in bear markets, even strong stocks will follow suit.

Bharti Tele

Bharat Tele is another pivotal which has been staying well above its rising 30 WMA and is a major uptrend. The stock has exhibited a lower rate of decline as compared to the indices and will have to bounce back soon and go into a fresh intermediate uptrend if the indices have to bottom out soon. On the other hand, if strong relative strength stocks like Bharati, also start declining sharply, the indices may not be able to hold on and will drop below their targets suggested above. Investors and traders must keep a close watch at these indices and these stocks.

The author may be contacted at mayur-s@vsnl.com