Pivotal Stocks: Keep A Close Watch On Them

Updated: Nov 16 2003, 05:30am hrs
The intermediate trend turned down as the indices dropped below their respective targets and have exhibited descending intermediate tops and bottoms. Even the broader market indices like BSE-500, BSE-200 and BSE-100 went into an intermediate downtrend as they also dropped into a fresh intermediate downtrend indicating that the rise seen in mid-cap stocks has also paused.

The intermediate uptrend lasted for one-and-a-half weeks and has made an intermediate top on November 5. The current intermediate downtrend is broad-based, but there is still no selling seen with extremely large volumes. This suggests that intermediate correction may be possibly within the major uptrend.

The earlier intermediate bottom for the Sensex is at 4,599 and for the Nifty it is at 1,434 and the current intermediate downtrend must terminate before this level if the bull run has to continue. If the indices drop below these targets, the major trend will turn down and thus both traders as well as investors must keep a close watch on the indices in the current intermediate downtrend.

There are a few pivotals and stocks, which are not dropping as sharply as the pivotals. If the indices are able to form intermediate bottoms, these stocks are likely to take a lead in the next intermediate uptrend. These stocks are not from one sector, but traders and investors must keep a close watch on these stocks as they can take a lead in the next intermediate rise.

Hindustan Lever
Hindustan Lever is one of the lagging pivotals in the current bull run and could be one of the last to do some making up. The stock is in an intermediate downtrend, but has not been declining at the same rate as the Sensex resulting in a bullish short-term relative strength. In the long- term, the relative strength-line is well below its zero line, but with the short-term relative strength-line improving and if the stock can go into a fresh intermediate uptrend here, it could result in a pause to the current intermediate downtrend, but can also result in a reversal in the trend.

The stock has been weak and investors must avoid even if there is an improvement in the short-term relative strength as the long-term relative strength line is weak and the stock has been lagging in the bull run. The stock is just above its earlier intermediate bottom of 173 and a close below this level will result in the stock going into a major downtrend. However, any intermediate rise could be just a buying opportunity for traders on the long side.

ITC
ITC is also from the FMCG sector and has been lagging behind the other stocks and the other sectors in the current bull run. However, like Hindustan Lever, there is an improvement in the short relative strength by the stock, as the stock has not declined as sharply as the Sensex. This means that if the stock is able to go into a fresh intermediate uptrend here, it could lead in the next intermediate rise. The stock will do some catch-up in the bull run and will provide traders with some trading opportunity on the long side. Investors must continue to avoid the stock as the relative strength line for the stock is staying below its zero line and may not move above its zero line as its well below it. Investors must always pick up the leaders and stay away from the laggers. If there is any improvement in the short-term relative strength line by the laggers, it is just a trading opportunity.

Reliance Energy
Reliance Energy is different from the stocks discussed as it is one of the leading stocks in the power sector and has been exhibiting a bullish relative strength. The stock is in a sideways correction and may go into an intermediate downtrend if it drops below 461.65. However, as the major trend of the stock is up, the short-term correction can be used by investors to get into the stock.

Also as the stock is exhibiting lower rate of decline in the current intermediate downtrend, it is a sign of strength and once the intermediate downtrend ends; traders can look for long positions in this stock. Also there has been good activity in the power stocks and the relative strength-line for all the stocks in this sector are bullish, investors must hold on to their long positions. They must stop at 403 for long positions held.

The author can be contacted at mayur_s@vsnl.com