Not many old economy stocks have joined the intermediate rise indicating that the current intermediate rise is not likely to take the indices past their earlier intermediate tops and confirm a major uptrend. The target for the Sensex to confirm a major uptrend is 3228 and for the Nifty is at 1025.
During the current intermediate rise we have been seeing that the composite volume has been declining on up days and was rising on down days. This is not a bullish feature and suggests that the corrective mode of the market is still not yet over.
Once the market bottoms out, we are likely to see strong volumes on up days and lower volumes on down days. Thus the volume action seen in the current intermediate uptrend does not suggest that the indices are likely to cross their earlier intermediate tops.
The Sensex has a strong support at the 2900 level while the Nifty has a strong support at the 940 level. Under these conditions there is a possibility that the indices will move in a narrow range for some time and bottom out before we start seeing a bull run. The narrow range of the indices is the consolidation phase by the indices before the major uptrend starts. Thus investors will have to wait for some more time before they can get into the strong sectors. Till such time they must continue to look for strong sector but must get in only when the major uptrend by the indices is confirmed.
Majority of the sectors have corrected in the major downtrend, but there are a few sectors which have been staying above their 30 WMA and are exhibiting signs of strength. One such sector is the Paper sector wherein many stocks are consolidating just above their 30 WMA and once the market bottoms out, the sector is likely to outperform the indices in the next bull run. Thus investors must keep a close watch at this sector.
West Coast Paper
West Coast Paper is in an intermediate correction for the past few months and has now been taking a support at its 30 WMA and staying just above this long term moving average. This long term moving average has started to flatten out and once the current correction in the market is over, the stock will signal a buy as it moves past its earlier minor top with a strong surge in volume. That is the time, investors must get into the stocks. The relative strength line is moving closer to its zero line but is still above it suggesting that the stock is falling at a lower rate as compared to the indices. The weekly MACD for the stock indicates that correction is still and the histogram is moving lower. Once this correction is over, investors can get into the stock. This will happen only after the indices bottom out.
TN Newsprint is also consolidating at its 30 WMA and is well above the earlier bottom attained in September 2001. Like West Coast Paper, the stocks relative strength line is staying above its zero line though it has been declining since it made a top of 64.75. The pattern exhibited by the stocks in this sector are almost similar and once we see the bottoming over in a few stocks in this sector, all the leaders will start moving higher. The weekly MACD histogram suggest that the intermediate correction in the stock is not yet over and will take some time before the correction is over. Those who are holding long positions in the stock must continue to hold on and more long positions must be added only after the sector and the stock start a strong intermediate uptrend.
Though Ballarpur Inds is one of the leaders in the paper sector, I have chosen second line stocks as the patterns exhibited by these stocks is more bullish and the returns to the investors will be higher once these stocks complete their bottoming. Sirpur Paper is also taking a support at its 30 WMA and also at its earlier major top. The stock has exhibited a higher major top in July 2001 and is currently consolidating just above its earlier major tops.
The relative strength line is similar to the other two stocks and so is the weekly MACD indicator. All these stocks will jump into an intermediate uptrend at the same time and as they are exhibiting bullish relative strength and are well above their bottoms attained in September 2001, investors must keep a close watch at these stocks and must get in the sector once they see a rise with large volumes. They must only select the top leaders and avoid the other lagers.