The intermediate downtrend, which has been going on since August 12, has resulted in the indices making a new low, even as the Sensex has again tested its strong support of 12,500 and closed above it in the last week. The Nifty dropped below its earlier intermediate bottom of 3,790 and was able to close above these levels, but how long will they hold on to these levels? Friday?s strong declines has brought the indices closer to these low levels and are poised to break these supports if the US markets remain weak on Friday.
The indices have been making descending intermediate tops and bottoms and are in a major downtrend. The earlier intermediate top for the Sensex is at 15,580 and for the Nifty it is at 4,650 and these levels will have to be crossed in the next intermediate rise if the major trend has to turn ?up?. The equivalent level for the CNX Mid Cap index is at 6,016.
As long as the indices continue to exhibit descending intermediate tops and bottoms, the major downtrend will continue and investors must stay away. Not all stocks are breaking down at the same pace and stocks which are holding out in the current decline must be tracked by the investors. They must start picking up long positions in these stocks once the indices begin to bottom out and the volume action suggests a change.
With the indices closer to their important supports, the coming week will decide the fate of these supports. A close below the supports of 12,500 for the Sensex and 3,800 for the Nifty will mean that the Sensex is headed towards the next support zone of 11,100-11,250. The equivalent support zone for the Nifty is at 3,300-3,350.
If the indices were to start an intermediate uptrend by moving past their respective targets, the important resistance levels which these indices will have to face are at 13,750 and 14,580 for the sensex and 4,155 and 4,370 for the Nifty. The equivalent resistance levels for the CNX Mid Cap index are at 5,310 and 5,700.
The targets for the Sensex and the Nifty to get back into an intermediate uptrend are at 13,204 and 4,000.50 respectively. The equivalent level for the CNX Mid Cap index is at 4,972.15.
In the last week, all the indices ended in red. The Sensex lost 4.40% and the Nifty ended 4.19% lower. Among the sectors, the BSE Metals index was the largest loser ending 11.42% lower and was followed by the BSE Reality sector which lost 7.43%. The defensive sectors were the least losers as the BSE FMCG sector ended 0.41% lower and was followed by the BSE Auto sector which lost 0.61%.
Today, we look at the some stocks which are holding out in the current intermediate decline. If the indices were to start a fresh intermediate rise, traders can look for long positions in these stocks.
Hero Honda
Hero Honda is one of the few stocks which is in a major uptrend and is closer to its earlier major top of 950 attained in March 2006. The stock has been exhibiting ascending intermediate tops and bottoms and as a result the major trend is ?up? and the relative strength bullish. If the index were to bottom out soon and start a fresh intermediate uptrend, the stock will soon test its earlier major top. The resistance on the upper side to the stock is at 903 before it moves towards the earlier major top. Support to the stock is at 780 and 845.
TVS Suzuki
TVS Suzuki is in a major downtrend and has been staying below its falling 30 WMA. The stock has not been declining in the current intermediate downtrend and the short term relative strength of the stock has been improving. The stock is trading sideways between 30 and 37 for the past few weeks and a close past 37 by the stock with a strong surge in trading volumes will result in higher levels for the stock. Resistances to the stock are at 36.90 and 50.50. A move past 37 could take the stock to the next resistance level where traders can look to book profits. Supports to the stock are at 32.50 and 25.40.
Few stocks in the banking sector have been showing signs of strength and HDFC Bank is one of them. This however does not mean that if the indices continue to break down, these strong stocks won?t break. But, investors and traders must keep a track of these stocks as if the indices were to start a fresh intermediate uptrend, some of these stocks will continue to outperform and would provide traders with an opportunity on the long side. HDFC Bank is currently facing a resistance at the 30 WMA and will have to move past 1,390 with a strong volume if the stock has to move higher.
For more details contact mayur_s@vsnl.com