The Sensex dropped to the important support zone between 15,300 and 15,500 and we saw a strong short covering on Thursday, but this was fizzled out on Friday when the indices were unable to sustain higher levels as investors and traders used this opportunity to liquidate long positions. A drop below this strong support will result in the Sensex testing its earlier intermediate bottom of 14,677 and the nifty is headed towards the support from the earlier intermediate bottom of 4,468.

A breach of these levels will confirm a continuation of the major downtrend and the bear market indicating lower levels for the indices and a deeper correction. The indices have been exhibiting descending intermediate tops and had to make a higher intermediate bottom to confirm a start of a new bull run. But if the indices drop below their earlier intermediate bottoms, then it will mean that the major trend remains down and the bear market continues. The targets for the Sensex and the Nifty to go into a fresh intermediate uptrend are at 16,666 and 4,957.40. A drop below Friday?s low will lower these targets to 15,971 and 4,746.30. The target for the CNX Mid Cap is at 6,643.25 and this will be lowered to 6,288.15 after the index drops below Friday?s low.

The market breadth was weak on four of the five trading sessions and more stocks have been making new lows and breaking below their earlier intermediate bottoms even though the indices have not yet broken below their earlier intermediate bottoms. This suggests that the indices will follow suit soon and we will soon see lower levels in the coming week once the supports suggested above are broken. Also, once these strong supports are broken, the time required for the market to get back into a major uptrend will be more as we see lower levels. Under these conditions, investors must operate sideways or trade in the direction of the intermediate trend while traders can continue to trade on the short side.

All the indices ended lower in the last week as the BSE Reality index was the largest lower ending 11.39% lower and was followed by the BSE Capital Goods index which lost 8.50%. The sensex lost 5.14% and the nifty ended 4.98% lower. The defensive sectors which were the least affected were the BSE IT sector which lost 0.97% and was followed by the BSE Health Care index which lost 2.27%.

Once the indices fall below their earlier intermediate bottoms, even strong stocks will start dropping into an intermediate downtrend. Investors may either shift to defensive stocks or it is better that they stay away from the market for some time till we see a bottoming process in some new sectors. Fertilizer stocks were exhibiting a bullish relative strength and will now join the downtrend once the indices breakdown below their earlier intermediate bottoms. I will take a look at some of these stocks today.

Nagarjuna Fertilisers

Nagarjuna Fertilisers was staying below its 30 WMA after the fall in January and even though the major trend of the stock is down, the relative strength for the stock was neutral indicating that the stock was moving in line with the indices. In the last week, the stock was moving sideways between 41.80 and 46.20 and a drop below 41.80 will result in lower levels for the stock as the stock will be headed towards the support of 35. There is a small support at 39 and once this is breached, the next support is at 35.

The momentum indicators are weak indicating weakness in the coming week and some short selling opportunities.

GNFC

GNFC is also in a major downtrend as the stock has been exhibiting descending intermediate tops and bottoms. The relative strength remains weak and with the weekly MACD Histogram making lower intermediate bottom in the earlier intermediate decline, the stock will follow suit in the current intermediate downtrend. The intermediate trend of the stock is down and traders must hold on to their short positions. Use any minor rise in the coming week to add to the short positions. The relative strength line is weak as it is exhibiting lower tops indicating that the stock is weaker than the indices.

Chambal Fert

Chambal Fert is the only stock in the fertilizer sector which is in a major uptrend and has been exhibiting a bullish relative strength. If the indices continue their intermediate downtrend, it is quite likely that Chambal Fert will also drop into an intermediate downtrend and pull back towards its 30 WMA.

A drop below 76.60 will result in the intermediate trend turning down and some trading opportunity on the short side.

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