After breaking into a new high territory last week, the Sensex and the Nifty dipped back into the trading range, indicating that the breakout has fizzled out and these indices are back into the sideways choppy mode. In the last week, most of the stocks and the indices drifted lower and ended in the red, but the intermediate trend of the Sensex and the Nifty are still up and only a drop below 18,884 and 5,595 suggest that the intermediate trend is down. Currently, the intermediate uptrend which started on November 22 is still intact.
Last week saw the Sensex drift lower by 4.33% and the Nifty lose 4.65%. The CNX Mid Cap index also ended 4.86% lower. Among the sectors, the BSE Metals index lost 7.54% and was followed by the BSE Realty sector which lost 6.34%. On the bullish side, the activity in tech stocks improved as the CNX IT index gained 0.53% followed by the BSE Healthcare index which ended 1.53% lower.
The market breadth was moderately weak as the mid- and small-cap stocks saw profit taking. The trading volumes were strong last Monday when the indices dropped sharply, indicating strong profit booking on that day. However, there was no strong follow up in the selling pressure on rest of the days when the indices dropped, indicating no big signs of distribution. The indices were choppy ahead of the Christmas as FII activity reduces. Trading volumes will again pick up from next year.
The mid- and small-cap stocks were outperforming the indices since Diwali. The CNX Mid Cap index is in an intermediate uptrend and will have to drop below 8,353 to indicate that the major trend has turned down.
The BSE Small Cap index will have to drop below 11,604 to suggest that the intermediate uptrend has ended. As long as these indices stay above these levels, and bounce back in the coming week, we could see the continuation of the intermediate uptrend from next year.
If the Sensex and the Nifty have to breakout above the 20,000 and 6,000 respective levels and move higher, some new sectors will have to start participating in the uptrend. Tech stocks have been underperforming since a while.
A few stocks along with the CNX IT index have been exhibiting a positive divergence on the weekly charts, suggesting that the momentum on the downside is reducing.
However, it will require a breakout on the upper side and a rise in the momentum on the upper side to indicate that this sector has bottomed out and has started a fresh uptrend. I will take a look at a few stocks in this sector today.
Wipro is in a major downtrend as the stock has been exhibiting descending intermediate tops and bottoms and has been staying below its falling 30 WMA. The stock has been finding a good support at the 425 level and a close past 515 will complete a double bottom formation for the stock.
This will give the stock a minimum target of 90 points on the upper side and will also confirm a major uptrend for the stock.
The relative strength line for the stock is weak as the stock was underperforming the indices since 2006-end. Watch for a breakout above 515 with strong volumes and pick up long positions in the stock.
CMC
CMC went into a major uptrend on Friday when the stock broke out of the strong base and moved past its earlier intermediate top of 1080 with a strong surge in trading volumes.
The stock has made a nice ?CUP? shaped basing formation, suggesting that the stock is now ready to move higher. The breakout by the stock has occurred with a strong surge in trading volumes, suggesting that the bulls are not active in the stock. The relative strength line for the stock has turned bullish and this means that the stock has started to outperform the indices.
Any pull back or a minor correction towards the 1,100 level must be used by investors to pick up long positions in the stock.
Polaris
Polaris has been staying between 98 and 130 since August 2007 and has made a nice bottom in this zone. The weekly MACD Histogram for the stock has been exhibiting a bullish divergence, suggesting that the stock?s downside momentum is lost and the stock is poised to move higher.
However, we require more confirmation by the stock in the form of a breakout from the base with a strong surge in trading volumes to suggest that the stock is headed higher. Investors must watch for a breakout above 130 with a strong surge in trading volumes.
If this happens, then investors and position traders can pick up long positions in the stock. Do not pick up long positions now as staying in the sideways mode could be quite boring.
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