Bullish activity continued in the mid- and small-cap stocks while the Sensex and the Nifty are finding it difficult to close past the 20,000 and 6,000 levels respectively. Since November, the Sensex and the Nifty are locked in a large range and are currently at the upper end of the trading range. Only a strong breakout above the 20,000 level for the Sensex and 6,000 for the Nifty will result in higher levels. However, with not many frontline stocks in a strong intermediate rise, the possibility of the indices drifting in the range is higher.
Mid-cap stocks were laggards before Diwali and were lagging behind the frontline stocks for more than a year. Now, with the activity back into the mid- and small-cap stocks, investors and traders must look for long positions in these stocks.
Of the frontline stocks, only tech stocks are in an intermediate uptrend and they will act as a cushion to any decline by the other pivotals.
Last week, the Sensex gained 3.11% and the Nifty 3.67%. The CNX Mid Cap index again outperformed these indices as it gained 6.02%. Among the sectors, the BSE Consumer Durables index gained 10.51% and was followed by the BSE Realty sector which gained 8.94%. On the weaker side, the BSE FMCG index ended 1.04% lower and was followed by the BSE Capital Goods sector which gained 2.96%.
The Sensex is locked between 18,182 on the lower side and 20,238 on the upper side, while the Nifty has been staying between 5,394 and 6,050. Only a close above the upper levels with a strong volume will mean higher levels for the indices. We are seeing that the Sensex has been flirting at the 20,000 level in the past two trading sessions, but is not able to close above this level, and the Nifty past 6,000 level. This can result in a retest of the lower supports in the coming weeks as majority of the frontline pivotals are in a corrective mode.
If the Sensex and the Nifty are able to close above these strong resistances of 20,000 and 6,000, and the Sensex moves past 20,238, then the recent intermediate bottoms of 18,182 by the Sensex and 5,394 by the Nifty will be levels below which these indices will signal a major downtrend. The equivalent level for the CNX Mid Cap index is at 6,464.
I had looked at the tech sector in the last week and this sector has made an intermediate bottom and improved this week. With the activity picking up in the tech stocks I will look at a few more stocks today.
Like most stocks in the tech sector, HCL Tech has been an underperformer since more than a year and the relative strengthline for the stock has been drifting lower. It will take a while before the relative strength improves and the current intermediate rise in this as well most of the stocks in this sector is just a corrective rise. As this is a corrective rise, investors must look for a trade for a few weeks only.
The major trend of the stock will turn up on a close past 332, but will face a resistance at 350 zone which is quite strong and investors and traders must look for profits at these levels. Long-term investment must be done in stocks which only exhibit relative strength. Many of these stocks are doing a catch up to the strong run-up by the indices in the current year.
Wirpo has made a nice intermediate bottom above the earlier bottom of 425 and a close past 515 will confirm that the major trend of the stock has turned up. A close past 515 with strong volumes will also complete a double bottom formation, giving the stock a minimum target of 90 points on the upper side.
The relative strengthline for the stock has started to improve and will improve further if the stock is able to close past 515 with strong volumes. The weekly MACD histogram for the stock has been exhibiting rising tops and bottoms, indicating that the momentum is on the higher side and this is a bullish sign. The trading volumes are still low and must be heavy on the breakout, otherwise, the breakout could fizzle out.
Infosys has been in a strong major downtrend and has been exhibiting descending intermediate tops and bottoms. The relative strengthline for the stock is weak and so is the momentum. The stock is well below its falling 30 WMA and this long-term moving average will act as a resistance to the current intermediate rise. As all the factors are not strong, investors must stay away from this stock as it is underperforming the indices.
The earlier intermediate top by the indices is at 2,140 and the stock will have to move past this level in the current intermediate rise to suggest that the major trend is up. Under these circumstances, the current intermediate rise is just a trading call and investors must stay away.
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