After having witnessed a strong run, mid cap and small cap stocks have led the declines in the last week. They were outperformers in the past few months and now have started to correct sharply and are underperforming the Sensex and the Nifty. Though many stocks went into a fresh intermediate downtrend in the last week, we are witnessing many frontline stocks hold on helping the Sensex and the Nifty to stay in the intermediate uptrend.

The Sensex ended marginally higher in the last week as it gained 0.68% while the Nifty lost 1.18%. The CNX Mid Cap index ended 6.88% lower and the BSE Small Cap index lost 8.57%. Among the sectors, the BSE Bankex was the largest gainer, ending 4.82% higher, and was followed by the BSE Realty index which gained 1.49%. On the weaker side, the BSE Metals index was the largest loser, ending 7.62% lower, and was followed by the BSE Auto index which lost 4.83%.

The market breadth was weak as declines scored over advances on all the days in the last week. This was dues to the weakness in the mid-cap and the small-cap stocks. The trading volumes on down days were not high and there are no signs of distribution and this indicates if the pivotals continue to improve, we are likely to see higher levels in the frontline indices.

The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are at 20,022 and 6,021 respectively. These levels will be raised after the indices move past Friday’s highs. The equivalent level for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 8,429.

The current intermediate uptrend has started on November 22 and fewer stocks are currently participating in the uptrend as we are now seeing mid-cap and small-cap stocks correcting. The intermediate bottoms formed on November 22 are now very important levels and are at 18,182 and 5,394. As long as the next intermediate correction ends above this level, the major uptrend remains intact. A drop below these levels will mean a start of a major downtrend. The equivalent level for the CNX Mid Cap is at 6,462.

If the indices have to move higher, participation is required from more sectors. One sector which looks interesting is the telecom sector. Stocks in this sector have already run up smartly in the current bull-run. A few stocks are currently exhibiting strength and could start a fresh intermediate uptrend giving a good trading opportunity here. Investors must hold on to the long positions in these stocks as major trend of the stocks is up.

RCom

RCom went into an intermediate uptrend in the last week as the stock closed past its earlier minor top of 754. The stock broke out of the strong descending trendline with a strong surge in trading volumes and is currently pulling back towards this trendline. The short-term money flow indicator is bullish and is above the zero line and once the minor correction of the stock ends and the stock starts moving higher, we will soon see higher levels in the stock. Swing traders can look for long positions once the stock moves past 810. Position traders can pick up long positions near the strong support at 775. The earlier intermediate bottom by the stock is at 651 and this is the stop loss level for the investors. Trail the stop higher as the stock moves up.

Idea

Idea was listed about a year ago and has been in a major uptrend since that time. The stock underperformed during the last intermediate rise, and hence the weakness in the relative strength since Diwali. However, in the last week, the stock has been exhibiting strength and has improved even as the indices stayed sideways. The money flow indicator is exhibiting strength, suggesting that the stock is witnessing strong volumes when it is rising and is declining with low volumes. In the daily charts, the stock is moving in a narrow range and a breakout from this narrow range can be used by investors and traders to pick up long positions in the stock. Keep a stop at 131 for the long positions picked up.

MTNL

MTNL was an underperformer in the current bull-run and as a result the relative strength line was weak. The stock went into a fresh intermediate uptrend in the earlier week after breaking out of the strong resistance of 200. In the last week, the stock has pulled back and has closed below its strong support of 200. Only if the stock again break out of the 200 level again with strong surge in trading volumes, investors and traders can pick up long positions in the stock. The stock has a strong resistance at 225 where partial profits have to be taken. Trail the stop as the stock moves higher.

?For more details contact mayur_s@vsnl.com