The global meltdown continued as the indices made new lows as they have now tested their earlier intermediate bottoms. The volatility continued to remain high at the indices as we continued to see them either open down or up with a gap depending on the overnight cues from the US markets. The intermediate trend remained down as the Sensex tested its earlier intermediate bottom of 13,946 and dropped well below it on Friday, before recovering and closing above this level. The Sensex also tested its 200 DMA, suggesting a pause here.
Friday?s recovery was quite strong, but it is too early to suggest that Friday?s lows could be an intermediate bottom. Usually in a bull market, the indices, the 200 DMA acts as a good support to the indices and the stocks and we will have to observe if the indices exhibit rising minor tops and bottoms here. Friday?s volumes have been quite strong and we now require a follow-up to Friday?s recovery.
If the indices fail to recover from the current levels and the Sensex and the Nifty close below their earlier intermediate bottoms of 13,946 and 4,100 respectively, then the major trend for the indices would be defined as down and the current correction is likely to last for some more time. The targets for the Sensex and the Nifty to go into a fresh intermediate uptrend are far away and are at 15,070 and 4,394 respectively.
The equivalent level for the CNX Mid Cap index to go into a fresh intermediate uptrend is at 6,039. All the indices ended in red in the last week as the Sensex registered a loss of 4.89% and the Nifty declined by 4.93%. The CNX Mid Cap index dropped lower by 3.63%. Among the sectors, the BSE Metals index was the largest loser, ending 9.68% lower and was followed by the BSE Capital Good index which lost 5.78%.
Though a few stocks have dropped into a major downtrend by closing past their earlier intermediate bottoms, there are still many stocks which are well above their earlier intermediate bottoms and have been exhibiting a bullish relative strength. Traders had a tough time as the volatile conditions prevailing have hit them hard. Investors must keep a close watch at the stock which are exhibiting strength and are declining at a lower pace as compared to the indices. These stocks and sectors will lead in the next intermediate uptrend and should be picked up once these stocks bottom out and go into a fresh intermediate uptrend. The current volatile conditions will not last for ever as high volatility begets low volatility.
One of the sectors which has been exhibiting strength in the current decline was the cement sector. Most of the stocks in this sector have exhibited a lower decline as compared to the indices and if the indices bottom out near the 200 DMA, this sector will take a lead. I will discuss a few stocks from this sector today.
Century Textiles
Century Textiles is correcting sideways while the indices are in a strong intermediate downtrend. This has resulted in a strong relative strength for the stock as the stock is very close to its earlier intermediate top of 767 and will be the first to move into the new high territory once the indices also go into an intermediate uptrend. As the major trend of the stock is up and the relative strength bullish, investors must continue to hold on to their long positions. Fresh long positions in the stock can be added once the stock goes into a fresh intermediate uptrend. Keep a stop at the 30 WMA for the new long positions that are added.
Gujarat Ambuja
Gujarat Ambuja is another stock in the cement sector which has been exhibiting a bullish relative strength and though the stock is in an intermediate downtrend, the stock has been declining at a lower pace as compared to the indices. This means that the stock has been outperforming the indices and the bulls are holding on their long positions and are not selling off even as many stocks have seen a strong decline in the past two to three weeks.
A close past 132.70 will result in the stock going into a fresh intermediate uptrend and investors and position traders can pick up long positions once the stock goes into a fresh intermediate uptrend. Position traders must keep a stop at 122 and investors must keep a stop at 118 and pick up long positions once the stock goes into a fresh intermediate uptrend.
Like the other stock discussed today, ACC is in an intermediate downtrend but the rate of decline by the stock has been lower as compared to the rate of decline by the indices.
The stock is taking a support at its 30 WMA and will go into a fresh intermediate uptrend on a move past 1025. As the major trend of the stock is up and the relative strength bullish, investors and position traders can add to the long positions in the stock with a stop at 926.
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