Another subdued end to the week as the indices continue to follow the US markets almost one to one and as a result we are seeing a gap up or down open every day. This has been the feature for the past few weeks as the indices have been in an intermediate downtrend since February 4 and continue to exhibit descending minor tops and bottoms. The Sensex ended the week with a 4.23% loss and the Nifty ended 3.62% lower. The CNX Mid Cap index lost 1.68%.
Few sectors ended in green as investors and traders looked at some defensive stocks in the weak market. The BSE Consumer Durable index ended 3.89% higher and was followed by the CNX IT index which gained 1.53%.
The other sectors which ended with marginal gains were the BSE Metals index, the BSE FMCG index and the BSE IT index. On the weaker side, the BSE Realty sector was the largest loser, ending 7.97% lower and was followed by the BSE Bankex index which lost 6.74%.
On the upper side, the Sensex met with strong resistance at the gap created by the ?island? between 18,312 and 18,439. After testing the lower end of this strong resistance, the indices have been declining and are headed to test the recent minor bottoms attained on February 11. On the lower side, the Sensex has a support at the gap between 17,141 and 17,265. This gap was created in the earlier week when the indices were moving higher. This is also the support crested by the ascending trendline.
The trading volumes continue to remain this as investors and traders were badly bruised in the sharp decline in January. They are all nursing their deep wounds and will require quite some time to heal. This also means that the indices will take a while before we see the bulls coming back.
The major trend of the indices is down and so is most of the stock. The Sensex and the Nifty will have to move past 18,497 and 5,545.20 to reinstate the major uptrend. The intermediate trends of the indices are down and the Sensex and the Nifty will have to close above 18,314.10 and 5,364.45 respectively to get back into an intermediate uptrend. The equivalent targets for the CNX Mid Cap index to get back into a fresh intermediate uptrend are at 7,378.
We are currently seeing that the indices are oscillating about their 200 DMA and though they are in an intermediate downtrend, they are moving sideways in a large triangle. A move out of the triangle will result in a nice move in the direction of the breakout.
All the markets around the world have been following the US markets as they are also trading in a large sideways triangle and will have to breakout or breakdown before we see our markets following suit. We do not have any big trigger except the Budget and unless there are large reform changes in the Budget, it could be a non-event as we continue to follow the US markets. With the indices in a major downtrend, I will look at pharma stocks which are defensive as these stocks are likely to see a better performance in the current conditions.
Ranbaxy
Like most of the stocks in the pharma sector, Ranbaxy was an underperformer in the major uptrend. Now, in the weak market conditions, we see a rise in activity in some of the defensive stocks, and this is natural.
The major trend of Ranbaxy is still down and the stock will have to close past its earlier intermediate top of 433. The stock has been oscillating about its 30 WMA for a while and unless we see a strong breakout by the stock above 433, with strong volumes, the major trend will remain down and the current intermediate rise is just a trading opportunity. However, if other sectors and the indices remain weak, the activity in this sector will improve and traders and investors can look at these stocks.
Cipla already went into a major uptrend in the earlier intermediate uptrend, but dropped below its earlier intermediate bottom on an intra day basis on January 22, when the indices dropped sharply. Now, again the intermediate trend of the stock has turned up and we are seeing an improvement in activity in this stock. The weekly MACD histogram had made rising tops in the earlier intermediate rise, suggesting that the stock will test its earlier intermediate top of 224.10 and possibly move above it. Again, being in the defensive sector, traders and investors can look for long positions in this stock.
Sun Pharma was one of the very few stocks in the pharma sector which was also in a strong uptrend in the earlier bull-run. The intermediate trend of the stock is down and as long as the stock stays above its earlier intermediate bottom of 890, the major trend of the stock is up. Investors must keep this as the stop loss level for the long positions held. The stock will have to close strongly above 1,171 for the stock to go into an intermediate uptrend. The next important resistance to the stock is at 1,265.
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