Though the intermediate downtrend has been confirmed on Friday, the intermediate top of 3416.92 was attained on January 10 and the current intermediate downtrend is already in the second week.
An intermediate downtrend in a bull market usually lasts anywhere from two to three weeks and as we are in the bull market we will soon see an intermediate bottom possibly towards the 200 DMA. After staying sideways between 3417 and 3320 for more than four weeks, the Sensex has dropped below the 3320 level and is now headed lower.
A breakdown from the sideways move gives the Sensex a minimum target of 3220 on the lower side. As this target level is closer to the 200 DMA, this level will be attained in the current intermediate downtrend. The support levels for the Sensex before touching the 200 DMA are at 3270 and 3240.
The current intermediate downtrend was triggered by a large weakness in the tech stocks. The war clouds have weakened the sentiment and will be responsible for lower levels in the indices. If there is no war triggered in the next week or two, the decline before the Budget will provide traders with an excellent opportunity for investors to get into strong sectors, which we have been discussing at an appropriate time.
Thus, investors must keep a close watch on the developments in Iraq and must be ready to get into strong stocks. There is however no hurry to get into the long positions as of now as the current intermediate downtrend will last for some more time and there is still some more downside which we will see in the next week or two.
On the other hand if the war breaks out, it will be difficult to predict the end and than we will have to wait for a longer time and rely on technical tools to again signal a buy. In that case, investors will have to wait a little longer before they can take up long positions.
Today, I will take a look at Indian pharma stocks which are defensive as well as showing strength, though a few are in an intermediate downtrend.
Aurobindo Pharma broke out of a very large base with a strong surge in volume indicating that the major trend of the stock is up. The strong spurt in volumes suggests that big buying went into the stock. The stock is still in an intermediate uptrend and any pull back towards the 30 WMA can be used by investors to get into the stock as the major trend of the stock is up. The relative strength line for the stock is bullish and is above its trigger line and any correction in the stock must be used by investors to get into the stock.
Ranbaxy is the one of the strongest stocks in the Indian pharma sector and with the correction started in the indices and the pharma sector, the stock is also poised to correct.
As the major trend of the stock is up, investors must use this correction to add to their long positions in the stock. The stock has a strong support between the 580/590 levels and any pull back towards this level must be used by investors to get into the stock.
The next support to the stock is at its 30 WMA. The relative strength line for the stock is above its zero line suggesting that the stock is outperforming the indices. The weekly MACD indicator for the stock has just moved above its zero line suggesting that the stock will exhibit higher levels in the next intermediate rise and will give traders and investors a good opportunity to get into the stock. Thus, use of the present correction in the market must be used.
Dr Reddys Labs
Dr Reddys Labs went into a major uptrend recently and after reaching a high of 1003, the stock is reacting and is in an intermediate downtrend and is pulling back towards its 30 WMA.
Like the other stocks discussed, weekly MACD for the stock is above its trigger line, but MACD histogram has started dropping suggesting a loss in the short term momentum. The major trend of the stock is up and the higher intermediate bottom by the stock will give investors an excellent opportunity to add to the long position.
Thus, the current intermediate decline in the stock must be used to get into the stock or add to the long positions.