The indices ended flat in the last week and even after we saw a strong open on Friday, the indices ended lower on profit taking near the earlier intermediate top. The intermediate trend of the indices is still up, but higher levels are being used by investors and traders to look for profits. The Sensex ended the week with a marginal gain of 0.09% and the Nifty with a gain of 0.19%. The BSE Mid Cap index ended 0.66% higher. A lot of churning is going on near the earlier intermediate tops.

In August, after a volatile decline, the indices took support at the 200 DMA and since that time the indices have been in an intermediate uptrend. The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend is at 15,350 and 4,445 respectively. The equivalent level for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 6,155. After the weak action on

Friday the indices will now have to close past Friday’s high, to indicate the continuation of the intermediate uptrend and higher levels for the indices.

The Reality sector bounced back in the last week as the BSE Reality index was the largest gainer ending 6.73% higher and was followed by the BSE Metals index, which gained 3.19%. On the weaker side, the CNX IT index was the largest loser ending 4.62% lower and was followed by the BSE Healthcare index, which lost 1.08%.

The earlier intermediate bottoms formed in August are now important levels for the indices and a drop below these levels in the next intermediate correction will mean that the major trend is down. These levels for the Sensex and the Nifty are at 13,779 and 4,002 for the Nifty. The earlier intermediate bottom for the CNX Mid Cap index is at 5,576.

The indices have been making many “DOJI” formation in the last two weeks, as the indices have paused after a strong rise seen since mid August. The volume action on a few days was bearish as we saw high volumes when the indices ended lower. This is some sign of distribution and if we see more such signs in the coming week, the intermediate uptrend could end and the indices could drop below their respective targets. The CNX Mid Cap index and the Nifty Junior have made new all time highs on Friday, while the Sensex and the Nifty came close to the all time high levels.

With the indices poised at a crucial juncture, I will take a look at some of the pivotals instead of the sectors, as the pivotals will decide as to how the indices are likely to behave. Tech stocks have been the weakest and are likely to lead the decline if the intermediate trend turns down.

Reliance Inds

Reliance Inds along with most of other “Reliance” stocks has been outperforming in the current bull-run and as such investors continue to hold them. The stock has been staying well above its 30 WMA and is in a strong major uptrend. Strong relative strength stocks usually are the last to fall as this is also seen in the case of Reliance Inds. Though the indices have seen some days of distribution, Reliance Inds has been marching upwards along with other stocks from the group, and investors must hold on to their long positions unless they also see large scale selling with large volumes. Currently the stop for the long positions is at 1700, and investors must trail the stop as the stock moves higher. The stock is already making new highs even though the indices have yet to do so.

State Bank of India

State Bank is also outperforming the indices since March as the relative strength line for the stock is making higher highs. In the last two week, the stocks performance is more in line with the indices and has yet to make new highs. The stop for the long positions held by the investors is at 1,408 and a drop below this level will result in the stock exhibiting a double top formation. However, as the stock has been making new highs and is staying above its rising 30 WMA, investors must hold on to the stock unless they see declines with large volumes. Declines with large volumes is a sign of distribution but if there is no sell-off in the global markets, we are not likely to see one here.

Bharti Tele

Bharti Tele was an out performer in the current bull-run, but has now been lagging behind in the current intermediate uptrend. The weekly MACD Histogram for the stock has been exhibiting lower descending bottoms, indicating that the momentum for the stock has already turned weak. The relative strength line, which was so bullish till now, has suddenly started to droop, indicating that the stock has been an underperformer in the current intermediate rise. This will have to improve immediately if the stock has to lead again; otherwise, we could see the stocks being the first pivotals to go into a major downtrend. Investors must hold on to their long positions with a stop at 750.

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