Even as the indices ended higher for the fourteenth consecutive week, the market breadth was bearish on four of the five trading sessions as many stocks dropped into a fresh intermediate downtrend. This indicates that traders and investors are looking for profits as the current intermediate rise has been going on since March 6 and is quite mature.
Also, even as the indices improved, the trading volumes have been declining, indicating that the bullish activity was seen in few select stocks. Select sectors like the metals, sugar and the tech stocks saw a bullish activity while realty and the banking sectors saw profit taking and this could result in the indices will remain choppy as sectors have started exhibiting divergent trends.
The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are at 14,526 and 4,365 respectively. The targets for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 5,268.95.
As many stocks have dropped into an intermediate downtrend in the last week, the indices could follow suit if pivitols also start to drop into a fresh intermediate downtrend. Currently, profit-taking is seen in the mid-cap and small-cap stocks as the CNX Mid Cap index ended 2.29% lower and the BSE Small Cap index lost 6.87%, while the Sensex ended with a small gain of 0.89% and the Nifty ended flat losing 0.08%. Among the sectors, the BSE Metals index was the largest gainer ending 4.49% higher and was followed by the CNX IT index, which gained 4.02%. On the weaker side, the BSE Realty index ended 9.12% lower and was followed by the BSE Bankex, which lost 2.02%.
The indices have gapped higher on Wednesday and the gap between 15,161 and 15,168 by the Sensex will act as a support to the minor decline in the coming week. Below these levels, the indices will test their respective intermediate downtrend targets. The Nifty does not exhibit any gaps, but the Nifty futures have a gap between 4,569 and 4,580. On Friday, the Nifty futures have already tested this gap, but have yet to close the gap.
In the past few trading sessions we are witnessing a lot of intra day volatility, especially in the indices. This suggests that at higher levels, traders and investors are looking for profits and at lower levels, traders who are left out are looking for some entry. This could result in the indices staying sideways while individual stocks decline. Under these circumstances, traders can look to trade in options once the indices confirm an intermediate downtrend. They can use Bear Call Spreads to trade in the Nifty. Also, from the coming week, time decay will be in favour of those who are writing options.
The Sensex has a strong resistance zone between 15,300 and 15,700 and the Nifty has a resistance zone between 4,650 and 4,800. The divergent trend by the sectors could lead to a sideways mode for the indices as traders and investors must look for stocks and sectors, which have started an intermediate correction. Investors must wait for the correction in these stocks to end before they start picking up long positions in the stocks. Today, I will take a look at the banking sector, which has been correcting for the past two weeks.
Axis Bank went into a major uptrend like most of the stocks and the indices in the intermediate uptrend as the stock closed past its earlier intermediate top of 575.50 with good volumes. As the major trend of the stock is up, the current intermediate correction must be used by investors to pick up long positions in the stock. The stock has a support at 677 and a close below this level will result in the stock drifting lower towards the next support of 625 and 538. Look for long positions in the stock near this support or wait for the next intermediate uptrend to start in the stock to pick up long positions.
Bank of India is also in a major uptrend as the stock closed past its earlier intermediate top of 324. The stock has already exhibited ascending intermediate tops and a higher intermediate bottom in the current intermediate downtrend will be a good opportunity to pick up long positions in the stock. The stock has closed below the support of 323 and is headed towards the next support of 280. Look for long positions at this support as the stock is already in an intermediate downtrend. Investors can wait for the next intermediate uptrend to start before looking for long positions.
State Bank of India
State Bank of India has started an intermediate correction like most of the stocks in the banking sector. The stock has dropped below its earlier minor bottom of 1,675 and is now headed towards the next support of 1,490. Below this level, the stock has a support at the 10 WMA, which is at 1,450. Look for long positions near this support or wait for the next intermediate rise before taking fresh long positions.
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