A strong rally in the last week took the indices closer to the weekly resistance as the bears were caught on a wrong foot. The resistances on the weekly charts for the Sensex are at 10,170 and 10,370 and unless the Sensex is able to close past this resistance zone between 10,170 and 10,370 on a weekly basis, higher levels will not be attained. The Nifty has a resistance at 3,100 and 3,160 and this zone between 3,100 and 3,600 will have to be crossed on a weekly basis for the Nifty if higher levels have to be attained.
A close past these weekly resistance levels will take the indices towards their 200 DMA levels, which are at 11,365 for the Sensex and 3,445 for the Nifty. This will also mean the start of a major uptrend. However, if the indices fail to cross these weekly resistance levels, then, a pull back towards the supports of 9,285 for the Sensex and 2,840 for the Nifty is likely. Majority of the other stocks markets around the world are also at their important resistance levels and the fate of our markets will be decided by how the US markets behave in the coming week. In the current intermediate rise, we have witnessed the Sensex has moved past the earlier intermediate tops of 9,725 for the Sensex and 2,970 of the Nifty in a faster time, Under normal circumstances, this would mean that the major trend is up, but as there are two more intermediate tops near by, the Sensex will have to close past 10,945 and the Nifty past 3,241 to confirm that the major trend has turned up. These are the highs attained during the October rally.
A few stocks have already closed past their October highs in the current intermediate rise and if more stocks are able to follow suit, the indices are likely to move into a major uptrend. The few stocks, which have already closed past their October highs and are in a major uptrend, are likely to out perform the indices if the indices are able to close past their weekly resistance levels. I will discuss some of these stocks today. In the last week the Sensex zoomed by 12.06% and the Nifty ended 10.74% higher. All the sectors ended in green as the BSE Bankex was the largest gainer ending 19.07% higher and were followed by the BSE Metals index, which gained 16.15%. On the weaker side, the BSE Realty sector was the weakest as it gained only 5.06% and was followed by the BSE IT sector, which gained 5.43%.
The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are at 8,867 and for the Nifty it is at 2,738. A minor decline followed by a minor rise will raise these targets. The equivalent level for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 3,248. As discussed above, I will discuss a few stocks which have already closed past their October highs and are likely to lead the rally if the indices move past their weekly resistance levels as discussed above.
Reliance Inds
Reliance Inds has closed past its earlier three intermediate tops and is now closer to its 30 WMA. The indices have yet to close past their October intermediate tops and with Reliance Inds already closing past the earlier three intermediate tops, the stock will lead the rise, if the indices also close past their weekly resistance levels. The stock is closer to its 200 DMA and is likely to move above this long term moving average and head higher towards the next resistance, which is currently quite far away and is at 1,750 and 2,050. Thus, if the indices close past the important resistance levels, investors and traders can look for long positions in strong relative strength stocks.
BHEL
BHEL is in a major uptrend as the stock has exhibited ascending intermediate tops and bottoms and is above its long term 30 WMA. Like Reliance Inds, the stock has also closed past its October intermediate tops and if the indices continue to move higher after crossing their weekly resistance levels, BHEL will outperform the indices and investors and traders must look for long positions in the stock. The relative strength line for the stock was already bullish since June 2008, indicating that the stock was declining at a lower rate as compared to the indices in the last quarter of 2008. The next important resistance level is at 1,800.
Sterlite Inds
Activity in the commodity stock has been strong and Sterlite Inds is another stock which has been trading well above its October intermediate top and is in a major uptrend. The stock is currently facing a resistance at the 30 WMA and like the other stocks discussed today, the stock has been outperforming the indices in the current intermediate rise. The next resistance to the stock once the 30 WMA is crossed is at 560. Investors and traders must look for long positions in strong relative strength stocks if the indices are able to move past their strong resistance zones.
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