The indices bounced back after being in the oversold condition as the Sensex gained 1.65% in the last week and the Nifty ended 1.79% higher. Among the sectors, the BSE Reality sector was the largest gainer ending 4.70% higher and was followed by the BSE Metals index which gained 4.07%. On the weaker side, the BSE FMCG index lost 1.56% and the CNX-IT index remained unchanged with a miniscule gain of 0.38%.

The Sensex and the Nifty dropped below their weekly support of 15,800 and 4,690 respectively on Tuesday, but bounced smartly on the other three days to close above these weekly supports. As long as these indices stay above these weekly supports, the possibility of the indices staying in the bull run is high. A close below these weekly supports on a weekly basis will mean that the Sensex is headed lower towards the target of 13,950 and 13,325 and the Nifty is headed lower towards the targets of 4,135 and 4,000 respectively.

The earlier intermediate bottom for the Sensex and the Nifty are at 14,684 and 4,353 and if the current intermediate downtrend ends above these levels, the major uptrend and the bull-run remains intact. A close below these levels will mean that the major uptrend which had started in March has ended. The equivalent level for the CNX Mid Cap index to drop into a major downtrend is at 5,634.

In the past three trading days, the Sensex and the Nifty have improved and are heading closer to the resistance of 16,475 and 16,615 for the Sensex and 4,880 and 4,930 for the Nifty. The CNX Mid Cap index has already exhibited rising tops and has closed past its earlier minor top of 6,784.85 and has gone into an intermediate uptrend. The targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend are far away and are at the earlier intermediate tops. These levels will be lowered once the current minor uptrend ends and the lower minor top will be the new target for the intermediate uptrend.

In the past three days, very few stocks have gone into an intermediate uptrend and unless scores of stocks get back into an intermediate uptrend, we are not likely to see the indices follow suit. In fact, the rise in the past three days is just a minor rise within the intermediate downtrend and once this minor rise is over, swing traders and position traders can look for short positions in weak relative strength stocks.

Select sectors like the automobile, healthcare and the tech sector are not weakening and if the indices bottom out new the weekly support levels and start a fresh intermediate uptrend, these sectors will take a lead. If the US markets continue to exhibit strength, we could see a sideways mode for a few days before the indices break down. On the other hand, if the US markets start weakening, than the intermediate downtrend will gain momentum here. Investors will have to look at the healthcare sector to hide themselves. I will take a look at few stocks in this sector.

Dr. Reddy?s is in the new high territory since September and has been exhibiting a bullish relative strength as the stock is very near to the all time high while the indices remain in an intermediate downtrend. The stock has seen a strong rise since the last week of October and any pull back towards the support of 990-1020 can be used by investors and position traders to look for long positions. The stock is expected to move higher after a minor decline and investors must look for long position in this sector and must liquidate longs in weak relative strength stocks.

The relative strength line for Lupin is very bullish as the stock is near its new high while the indices remain in an intermediate downtrend. The stock went into an intermediate uptrend in the last week and any pull back towards the support of 1250 must be used by investors and position traders to look for long positions. A higher level by the stock is expected as the daily, weekly and the monthly momentum indicators are in the bullish mode. The stock has a small technical resistance at 1350 and a close above this level will result in the stock heading towards the next target of 1450-1500.

Ranbaxy Labs is in a major uptrend as the stock has been exhibiting ascending intermediate tops and bottoms. The relative strength line for the stock has been improving and has been exhibiting ascending tops. After the strong decline in 2008, the stock has started to improve and the improvement in the relative strength is the first bullish sign. The stock went into a fresh intermediate uptrend on Friday and is headed higher towards the next target of 450. A pull back towards the support of 390 can be used by swing traders and position traders to look for long positions.

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