The truncated week saw the indices continue to decline as the intermediate trend remains down. The major trend for the indices and most of the stock is down as they have exhibited descending intermediate tops and bottoms as the bears have been having a nice time after four years of a strong bull-run. The Sensex is moving closer to its strong support zone between 14,000 and 14,500 and soon we could see a start of an intermediate rally within the major downtrend.
The Sensex lost 4.86% and the Nifty lost 3.62% in the three trading days. All the sector indices ended in red as the BSE Consumer Durables was the largest loser ending 11.54% lower and were followed by the BSE Bankex which lost 9.95%. The sectors which registered the lowest loss were the CNX IT which lost 0.84% and was followed by the BSE FMCG index which lost 1.08%.
The sectors which had lead in the earlier bull-run were the reality, power and the banking sectors. These are now also leading on the downside as bulls continue to unload. In the past, the major downtrend have lasted for six months, suggesting that the current major downtrend will last for some more time before we see new sectors take a lead.
The Sensex and the nifty have dropped below the big trendline on the weekly and the monthly charts and this also confirms a major downtrend. This means that the next intermediate rally must be used by investors to look for profits in the long positions held.
The bottoming process will take some time before we see new sectors taking a lead in the next bull-run and it is not right to pick stocks when they are falling and exhibiting descending intermediate tops and bottoms. It is important to see which new sectors take a lead in the next bull-run and get in once the bottoming process is over.
Fundamentally, valuations could be mouth watering, but it is important for the indices to bottom out. In a major downtrend investors must stay away and traders can continue to trade in the direction of the intermediate trend. Intermediate downtrend will last longer while intermediate rallies will be short lived as higher levels will witness profit taking. The targets for the Sensex and the nifty to get back into a fresh intermediate uptrend are at 16,684 and 5,019.20 respectively. These targets will be lowered after the indices drop below Wednesday?s low and the new targets will be 15,466 and 4,718.40 respectively.
The earlier intermediate tops for the Sensex and the Nifty are at 18,896 and 5,545.20 and these indices will have to close past these levels in the next intermediate uptrend for the intermediate uptrend to be reinstated. The equivalent level for the CNX Mid Cap index is at 7,737.20.
In a major downtrend, defensive stocks exhibit a bullish relative strength as investors shift to these sectors. However, once the new bull-run starts new sectors which take a lead. As we are currently in a major downtrend, I will take a look at the FMCG sector which is one of the defensive sectors.
ITC is in a major uptrend as the stock is trading above its earlier intermediate bottom and is taking a support at its long term moving average of 30 WMA. The stock has a strong support at the 180-185 region and a move past 193 will result in the stock going into a fresh intermediate uptrend. As the weekly MACD line for the stock is below its trigger line, it suggest that the stock will find it difficult to cross its earlier intermediate top of 212.20 and is likely to drift sideways in the current major downtrend of the market.
Once the indices start a fresh intermediate rally, traders can look for long positions in this stock for short to medium term gains. Book profits near the resistance level.
Hind Unilever
Few stocks are currently in an intermediate uptrend and Hind Unilever is one of them. As the stock is from the FMCG sector, investors have been flocking to this stocks when other frontline stocks have been falling hard. The relative strength line for the stock has been improving for the past few months as the stock is moving higher even as the indices continue to drop. The stock is currently facing a resistance at the earlier intermediate top of 244.10 and traders can look for profits in the long positions held. The daily momentum indicators have started to weaken indicating that the stock could correct or move sideways once the indices start an intermediate rally.
Colgate Palmolive is another stock in the FMCG sector which has not been falling in a current correction. The stock has been trading just above its 30 WMA and its relative strength is bullish and is exhibiting rising tops and bottoms. As suggested above, investors must be in the defensive sectors to stay in cash when the indices and majority of the stocks correct. These stocks are not likely to make new highs, but will atleast not decline like most of the stocks and the indices.
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