A new low by the indices confirmed the continuation of a bear market and the major downtrend, as last week’s minor rise by the indices was retraced in just three days, suggesting that the momentum is still higher on the downside and we could see lower levels in the current intermediate downtrend. The intermediate downtrend has started on May 5, and with the volume action still bearish, the major trend is likely to continue for some more time, and as I have been suggesting, investors must stay away from the market for some more time. The first sign of any change in the major trend will be indicated by the volume action, as we will start seeing a strong surge in volume on up days and low volumes on down days. Currently, we are seeing just the opposite, indicating that the bull unloading is continuing and the bears are making hay.
The earlier intermediate top for the Sensex is at 17,735.70 and for the Nifty it is at 5,298.85. These levels will have to be crossed in the next intermediate uptrend if the major trend has to turn up. The equivalent level for the CNX Mid Cap index to go into a major uptrend is at 7,192.40.
All the indices ended in the red in the last week as the Sensex lost 4.07% and the Nifty ended 3.75% lower. The weaker sectors were again the interest sensitive sectors, as the capital goods sector lead the decline ending 5.15% lower and the BSE Realty sector lost 5.05%. The defensive sectors also fared badly, although they lost lower, as compared to the indices. The FMCG sector ended 0.33% lower and the BSE Auto sector ended 2.10% lower.
Mid Cap tech stocks were the only stocks, which have registered a lower percentage loss, but with the major trend and the intermediate trend down, even strong stocks could start weakening and could begin to drop.
The targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend are at 15,790 and 4,680 respectively. The equivalent target for the CNX Mid Cap index is at 6,363.
With the intermediate trend down and with strong sector even breaking down, I will take a look at the pivitols today. The pivitols will be the first to improve and start an intermediate uptrend if the indices are to bottom out and start a fresh intermediate rally. Till such time there are scores of opportunities on the downside and very few opportunities on the long side. Taking up long positions in the strong downtrend will be risky and traders must wait for the indices to exhibit rising minor tops and bottoms before picking long positions.
Reliance Inds
Reliance Inds was a leader on the upside in the earlier bull run, which lasted for four years and now, this stock has been a leader on the downside and is currently weaker than the indices. The relative strength line for the stock has turned weak and suggests that the stock is outperforming on the downside. The weekly MACD Histogram had made a lower bottom in the earlier intermediate decline and has suggested that the stock will follow suit soon. The stock is already below the earlier intermediate bottom of 2,120 and the next support level to the stock is at 1,948. Once this support is taken out, the stock will drift lower to the next support zone of 1,700-1,780. Traders must continue to trade on the short side and use the minor rise in the coming week to look for more short positions. Investors must stay away as of now.
Larsen & Toubro
Larsen & Toubro is also in a major downtrend as the stock has been exhibiting descending intermediate tops and bottoms and has been staying below its 30 WMA. The stock is very close to the last week’s minor bottom of 2,513 and is likely to breach this support soon. Like, Reliance Inds, the stock’s weekly MACD Histogram had made a lower intermediate bottom in the earlier intermediate decline, indicating that the stock will follow suit in the current intermediate downtrend. This means that the stock is likely to make new lows and test the next support, which is at 2,240. Again, as the major trend of the stock is down, investors must stay away and wait for the improvement in the volume action of the indices and the frontline pivitols.
Tech stocks have been bullish and have been one of the very few sectors where investors can hide in the current bearish trend. Infosys is in a major uptrend and has closed past its earlier intermediate top in the last intermediate rise. With the indices in a strong intermediate downtrend, strong stocks have also started dropping into a fresh intermediate downtrend. As the major trend is up, the current intermediate decline can be used by investors to liquidate long positions in weak relative strength stocks and get into this stock near its 30 WMA.
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