The Sensex and the Nifty have at least broken out of the big trading range, as they gained 2.38% and 3.20% respectively in the last week. Mid cap stocks have again lead the rise in the last week as the CNX Mid Cap Index gained 6.28% and the BSE Small Cap Index ended 7.62% higher. Activity in the power stocks ahead of the Reliance Power IPO was quite strong, as the BSE Power sector lead the rise in the sectors gaining 7.80% and was followed by the BSE FMCG sector, which ended 6.31% higher. Among the laggards, tech stocks lead the weakness as the CNX IT Index ended 4.81% lower and was followed by the BSE Healthcare Index, which ended with marginal gains of 1.27%.
The intermediate trend for the Sensex and the Nifty has been up since November 22, and the targets for these indices to drop into a fresh intermediate downtrend is at 20,077 and 6,021 respectively. The equivalent target for the CNX Mid Cap Index to drop into a fresh intermediate downtrend is at 8,429.
The Sensex and the Nifty have made a higher intermediate bottom on November 22, and the intermediate bottoms formed on this date are quite important. These levels are at 18,182 and 5,394 respectively. As long as the next intermediate correction ends above this level, the major trend remains up and the bull run continues. The equivalent level for the CNX Mid Cap Index to go into a major downtrend is at 6,462.
Mid cap and small cap stocks have lead the rise since Diwali, as we have seen good activity in many of these stocks. These stocks were lagging throughout 2007 and many of these stocks have been breaking out of a nice base formation. However, investors and traders must remember that these are high beta stocks and have a tendency to rise fast and also fall fast. Investors and traders must book profits in these stocks, which they are rising and must not wait for these stocks to drop to book profits, as many of these stocks are likely to hit lower circuits when the tide turns down.
The sector, which looks interesting, is the banking sector and I will look at a few stocks from this sector today.
Andhra Bank
Andhra Bank zoomed into the new high territory, as the stock went into a strong intermediate uptrend in the last week. The stocks made a new high with strong volumes indicating that the bulls are quite active in the stock. The weekly MACD Histogram has made new highs indicating that the momentum is on the side of the bulls and the stock will follow suit and make new highs. The stock has good support at the 115-118 zone, and any pull back in the coming week towards this support, must be used by investors and position traders to pick up long positions in the stock. Investors must keep a stop at 101 and must trail the stop higher as the stock moves up.
Allahabad Bank
Allahabad Bank made it to the new high territory, after breaking out of the large trading range between 106 and 127. The resistance of 127 is now the strong support, and any pull back towards this support at 127 can be used by investors and position traders to pick up long positions in the stock. The breakout from the trading range has occurred with a strong surge in trading volume, resulting in a strong money flow. The relative strength line was flat till now, as the stock was performing in line with the indices. Now, with the rise in activity in banking stocks, investors can use the correction in the coming week to get into these stocks. Like Andhra Bank, Allahabad Bank has a strong momentum, as the weekly MACD Histogram has been making new highs. The decline on Friday has been with low volumes and this is bullish indicating a positive money flow. Investors must keep a stop at 112 and trail the stop as the stock moves higher.
Canara Bank broke out of the large trading range and zoomed into the new high territory in the last week, as the stock moved out strongly above the strong resistance zone of 320-325. The breakout by the stock has been bullish, as the trading volume by the stock was extremely strong, suggesting that the bears were forced to cover their shorts as the bulls pounced on them. The daily as well as the weekly MACD indicators are very positive and are well above their trigger lines. The relative strength line has turned bullish as it is now making rising tops and bottoms. As the stock has seen a good run up in the last week, wait for a minor correction in the coming week to pick up long positions in the stock. A pull back towards the 350/360 level will be a good opportunity to pick up long positions.
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