The indices declined on all the five trading sessions in the last week as they are in a strong intermediate downtrend. Most of the frontline stocks are in a corrective mode as the Sensex declined 8.71% in the last week and the Nifty lost 7.98%. The CNX Mid Cap index lost 6.75% as all the sector indices ended in red. The greatest loser in the last week was the BSE Realty index which lost 10.84% and was followed by the BSE Oil & Gas sector which lost 8.95%. The least losses were recorded by the BSE Health Care Index which lost 3.78% and was followed by the BSE FMCG index which lost 3.85%.
The Sensex will have to move past 20,986 to go back into the intermediate uptrend. The target for the Nifty to get back into the intermediate uptrend is at 6,260 and the equivalent target for the CNX Mid Cap index is at 9,162. These levels are far away as the indices have exhibited a free fall. A minor rise followed by a minor decline will lower these targets.
The Sensex had gapped lower between 20,079 and 20,203 and this gap will now act as a resistance to any rise in the coming week. The Nifty does not exhibit any gap while the Nifty future has a gap between 6,045 and 6,054.
Even as the indices declined on all the days in the last week, the trading volumes were low and only the decline on Thursday was accompanied by high volumes (volumes above 50 DMA). This was the only sign of distribution and unless we see more such distribution days in the next few weeks, the major trend is likely to remain up.
All the world markets are in an intermediate downtrend and a few indices like the Nikkei, FTSE and the DJIA are already in a major downtrend. All these indices have exhibited descending intermediate tops and bottoms and are in a bear market. The indices in the markets are still in a major uptrend, but if the Sensex drops below 18,183 and the Nifty below 5,394 in the current intermediate downtrend, then the major trend of these indices will also turn down. The equivalent level for the CNX Mid Cap index to drop into a major downtrend is at 6,464.
I will take a look at the banking sector as this sector has been falling at a lower rate as compared to the Sensex. Once the indices bottom out, it is quite likely that this sector will take a lead in the next intermediate uptrend. However, this does not mean that investors must buy when these stocks and indices are declining. Wait for the intermediate trend of the indices and these stocks to turn up before picking long positions in these stocks.
PNB broke out of the strong resistance and its earlier intermediate top of 594 with a strong surge in trading volumes. After attaining a high of 721 in the earlier intermediate rise the stock is in an intermediate correction like most other stocks. The current intermediate correction is happening with thin volumes, indicating that there is no big selling in the stock, and this suggests a bullish money flow. The stock has a good support between 594 and 615 and keep a watch at this zone if the stock is making an intermediate bottom here. Wait for the daily indicators to turn positive before picking positions in the stock.
State Bank of India
State Bank of India is in a major uptrend as the stock continues to stay above its rising 30 WMA and has been exhibiting ascending intermediate tops and bottoms. The relative strengthline for the stock is bullish, indicating that the stock has been outperforming the indices. Though the intermediate trend of the stock is down, the stock has been staying sideways, and once the intermediate downtrend of the indices ends, the stock will be ripe to zoom out and go into a fresh intermediate uptrend. Investors must hold on to their long positions and position traders must wait for the stock to breakout of the current sideways mode with a strong surge in trading volume before taking fresh long positions.
Bank of Baroda is another stock in the banking sector which has been in a strong major uptrend since July 2007. The stock broke out into the new high territory and has been outperforming the Sensex as the relative strengthline of the stock is bullish. Like most stocks in the current intermediate downtrend, Bank of Baroda is in an intermediate downtrend, but the current correction is with thin volumes, suggesting liquidating by weak hands. Once the current correction by the stock ends and the indices move into a major uptrend, position traders and investors can add to the long positions in the stock.
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