The indices ended higher for a second successive week, indicating that an intermediate rally within the major downtrend may have started. Few stocks have already gone into a fresh intermediate uptrend and more could follow suit, as many stocks have exhibited a higher minor bottom on Friday. The indices retraced one third of the earlier minor rise and a close past their recent minor highs will confirm that the intermediate trend is up. Since September, when the intermediate downtrend has started, it is the first time that the indices have gained for two successive weeks and this suggests a possibility of an intermediate rally.
The targets for the Sensex and the Nifty to get into a fresh intermediate uptrend are at 10,945.40 and 3,240.55 respectively. The equivalent target for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 3,884.70.
The earlier intermediate top for the Sensex and the Nifty are far and are at 15,580 and 4,650 respectively. As these targets are far away and not likely to crossed in the intermediate rally, the intermediate rise will be an intermediate rally within the major downtrend. The equivalent target for the CNX Mid Cap index to get back into a major uptrend is at 6,016.
In the last week, the Sensex gained 1.80% and the Nifty ended 3.03% higher. Among the sectors, the beaten down sectors in the earlier intermediate decline were the largest gainers in the last week. The BSE Realty index notched up 18.43% and the BSE Power sector gained 12.27%, while the BSE IT sector ended 6.69% lower and was followed by the BSE Metals index, which lost 4.01%. This clearly suggests that the gains in the past two weeks are mainly due to short covering.
The important resistance levels in the coming week for the Sensex are at 10,130 and 11,630. The Nifty has a resistance at 3,060 and 3,575. Once these indices are able to cross the first resistance levels, they are headed towards the next resistance level.
The indices have been exhibiting descending intermediate tops and bottoms and have been in a major downtrend since January 2008. Only when the indices exhibit a higher intermediate top, will the major downtrend continue and it is a trading market. Trade in the direction of the intermediate trend.
The short-term momentum indicator for the stocks and the indices has turned up but the medium term momentum is still down. These are divergent trends, which suggest that the rise since October 27 is a rally within a major downtrend. Today, I will look at a few metal stocks, which could improve in the coming week if the intermediate rally continues and the indices move past the first resistance (suggested above) and head towards the next resistance.
Hindalco has seen a vertical decline in the past two months, as the stock is currently trading well below its falling 30 WMA. The stock is now witnessing a bounce back and could confirm an intermediate uptrend if the stock moves past its earlier minor top of 67.30. As the major trend is down and the relative strength bearish, investors must stay away from the stock for some time. On the daily charts, the stock has a resistance at 64.30 and 88.50 and only after the stock is able to move well past the first resistance level, it will be headed to the next resistance level, where traders must look for profit booking.
Bhushan Steel
Bhushan Steel is already in an intermediate uptrend and is currently at the strong resistance of 700 from the 50 DMA. The stock has exhibited ascending minor tops and bottoms and traders must book partial profits at the current levels in the long positions held. Once the stock is able to close to this resistance of 700, it is headed to the next resistance of 770, where balance profits can be booked. Keep a stop at 660 for the long positions held. Again, as the major trend of the stock is down, investors must stay away.
Jindal Steel & Power
Jindal Steel has exhibited ascending minor bottoms and a close past 875 will result in the intermediate trend of the stock turning up. As the stock has exhibited a vertical fall in the earlier intermediate decline, the current intermediate rise will be a rally within the major downtrend.
The stock is currently facing a resistance at the 760 level and a move past this resistance and the earlier minor top will result in the stock moving towards the next resistance of 935 where traders can look for profits. Investors must stay away from the stock.
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