After consolidating in the first part of the week at the weekly support levels, the indices broke down in line with the world markets as the indices are now below their weekly supports and are headed towards their November bottoms of 15,330 for the Sensex and 4,538.50 for the Nifty. These levels are closer to their 200 DMA?s of 15,555 for the Sensex and 5,425 for the Nifty. Thus, the current intermediate downtrend which had started on the January 6, is heading closer to the support of the November intermediate bottoms.
The November intermediate bottoms for the indices are also the earlier intermediate bottoms and unless the European crisis blows over, we are likely to see these levels holding and would result in a start of an intermediate rally. Currently the targets for the Sensex and the Nifty to get back into an intermediate uptrend are far away and are at 16,553 and 4,951.15 respectively. The equivalent level for the CNX Mid Cap index is at 7,446.20.
Majority of the indices ended in red as the Sensex lost 3.47% and the Nifty ended 3.35% lower. Among the sectors, the BSE Reality sector lead the slide as it ended 7.14% lower and was followed by the BSE Bankex which lost 4.53%. The only sector to have ended in green was the BSE Consumer Durables sector which gained 2.91% and was followed by the BSE Healthcare sector which ended marginally in red losing 0.63%.
Though the indices have dropped below both their weekly supports, there are not many stocks which have dropped into a major downtrend. This suggests that the possibility of the indices holding on at or above the November intermediate bottom is higher. As we have already seen a strong decline in the current intermediate downtrend, traders and investors must start looking for stocks which are not breaking down and are exhibiting a higher relative strength. These are the stocks which are likely to outperform the indices in the next intermediate rally.
However, as the intermediate uptrend targets for the indices and most of the stocks are still far away, it will take a while before we see lower targets. A minor rise from here followed by a minor decline will lower the targets and will soon give traders and investors an opportunity to look on the long side for the next intermediate rally. Thus, in the coming week we are likely to see a minor rise and again a correction. Also, the volatility is likely to reduce as currently we have seen a rise in volatility after a strong decline.
I will look at the cement sector today as the sector has made a nice bottom in Nov. 2009 and a higher intermediate bottom in the current intermediate decline will be a good opportunity in this sector once the current intermediate decline ends.
ACC is in an intermediate downtrend like most of the stocks currently, but the weekly MACD indicator is still above its trigger line. The MACD histogram has made a higher top in the earlier intermediate uptrend suggesting that the stock will follow suit in the current intermediate rise or at least test the recent intermediate top once the current correction is over. The target for the stock to get back into a fresh intermediate rise is far away and is at 895; however, a minor rise followed by a minor decline will lower these targets in the coming week. Look for long positions once the intermediate trend turns up.
Like ACC, UltraTech cement is also in an intermediate downtrend, but is trading just above its 50 DMA. Usually stocks which continue to hold on to their 50 DMA and than start a fresh intermediate rise will take a lead in the next intermediate rise and traders and investors must keep a watch at the stock. Once the stock makes an intermediate bottom near its 50 DMA and starts a fresh intermediate rise, look for long positions. As the relative strength line for the stock is bullish, higher levels are expected in the next intermediate rise.
Grasim . is also trading just above its support at 50 DMA and is a stock which position traders and investors must keep a watch. On the daily and the weekly charts, the stock has a support at 2,509 and 2,465 and if these supports are held in the current intermediate downtrend, than position traders and investors can look for long positions in the next intermediate rise. Some investors want to pick stocks in a decline and they can use the weekly supports to pick long positions.
However, some prefer to wait for an intermediate bottom to be formed before looking for long positions. Currently the target for the stock to get back into an intermediate rise is far away and is at 2,715. A lower target will be formed in the coming week.
For more details contact mayur_s@vsnl.comp.