After the decline in the earlier week, the indices improved in the last week and ended at the upper end of a sideways contracting triangle. After the end of the sharp decline in October, the indices have been staying in a contracting triangle and exhibited descending minor tops and ascending minor bottoms. On Friday, the indices tested the upper end of this sideways triangle and a breakout from this triangle with a strong volume would suggest that the intermediate trend is still up and the indices will reach higher levels. On the other hand, if the indices again start to wind down after having tested the upper end of the triangle, we could see the indices pushing towards the lower end of the triangle and possibly breaking down to test the October lows.
The coming week will decide the fate of the contracting triangle and we will see either a breakout or a breakdown. The volatility has been on the decline in the past few weeks as the indices exhibited smaller legs in the triangle. A move out of the triangle will result in a rise in the expansion of the volatility and a nice trend move in the direction of the breakout or a breakdown. In the last week, the indices ended higher as the Sensex gained 6.75% and the Nifty ended 6.63% higher.
The CNX Mid Cap index outperformed the frontline indices and ended 8.48% higher. Among the sectors, the BSE Metals Index lead the rise ending 12.34% higher and was followed by the BSE Realty Sector which gained 12.34%. On the weaker side, the BSE FMCG Index registered the least percentage gain, ending 1.38% higher and was followed by the BSE Healthcare Sector which gained 3.66%.
The Sensex and the Nifty had dropped below their respective targets in the earlier week and had signaled an intermediate downtrend. Last week’s rise has taken the indices closer to their earlier minor tops and if the Sensex is able to move past 10,189 and the Nifty past 3,111, then the intermediate uptrend will be reinstated. The CNX Mid Cap Index continues to stay in an intermediate uptrend and will have to drop below 3,540 to go into an intermediate downtrend.
The indices have been in an intermediate uptrend since mid-November and the intermediate rise is a rally within the major downtrend. If the indices were to breakout on the upper side, we will see the indices touch higher levels. The higher the indices can go into the current intermediate rally, the greater will be the probability of the major trend turning up as a possibility of the indices to exhibit a higher intermediate bottom in the next intermediate downtrend will be higher.
Few stocks have moved closer to their September highs, and the indices are well below these levels. Thus, the stocks which are outperforming now will be the best candidates for the next bull run, if the indices were to make a higher intermediate bottom in the next intermediate downtrend. A few of these stocks are from the PSU banking sector and today I will take a look at some of them.
Bank of India has moved very close to its earlier intermediate top of 312, while the indices are well below their earlier intermediate tops. This has resulted in a strong relative strength line and suggest that once the indices bottom out and exhibit a higher intermediate bottom in the next intermediate correction, this stock will lead the next bull run and investors must keep a track of such stocks and look for long positions in the next intermediate correction. Investors must keep a track of such stocks as they will perform better than the indices, once the major uptrend is confirmed.
Another stock in the PSU banking sector which is exhibiting a bullish relative strength is PNB. The stock has come very close to its earlier intermediate top of 542 and a close past this level with a strong surge in trading volume will confirm a major uptrend for the stock.
The relative strength line for the stock has been outperforming since September indicating that the stock was not declining at the same rate as the indices. Investors must also keep a track of this stock and look for long positions in the next intermediate correction or on a breakout above 542. Strong relative strength stocks will lead the next bull run.
Union Bank
Union Bank had already closed past its earlier intermediate top two weeks back, but immediately reacted and has been trading sideways just below its earlier intermediate top. Like the other stocks discussed today, Union bank is exhibiting a bullish relative strength and is outperforming the indices. A higher intermediate bottom in the next intermediate correction will be the right recipe for investors and position traders to pick up long positions in the stock.
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