The intermediate downtrend gained momentum as markets continued to follow the global trends as the Sensex tested its low made on the January 22 and dipped below the same on an intra-day basis. The Nifty is still a little higher than the lows made on January 22 and so is the CNX Mid Cap index. The indices have gapped lower on last Thursday and the gap between 15,873 and 16,064 will be the first hurdle which the Sensex have to cross before it can make higher levels.
The new targets for the Sensex and the Nifty to go back into a fresh intermediate uptrend are at 16,684 and 5,019.20 respectively. The equivalent level for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 7,018.80.
The indices have been making descending intermediate tops and bottoms and are in a major downtrend or a bear market. The Sensex will have to get back above its earlier intermediate top of 18,896 in the next intermediate rise to reinstate the major uptrend. The equivalent level for the Nifty is at 5,545.20 and for the CNX Mid Cap index is at 7,814.
The major downtrend has lasted for six months to more in the recent past and it is quite likely that we will again see the current corrective mode lasting for some more time till the indices bottom out and new sectors lead the next bull run. Under these circumstances, investors must stay sideways and wait for the indices to bottom out before stating to pick long positions. As long as the indices were in a major uptrend, picking stocks on a decline was right; but with the major trend certainly down, it is foolish to pick stocks when they are declining. The bottoming process will take some time and wait for the technical indicators to improve before picking long positions.
In the last week the Sensex ended with a 0.96% loss and the nifty ended 0.54% lower. Among the sectors, the BSE Oil & Gas index was the largest gainer ending 3.96% higher and was followed by the BSE Power sector index which gained 0.47%. On the weaker side, the BSE IT index was the largest loser ending 6.73% and was followed by the BSE Consumer Durables index which lost 5.47%.
The current intermediate downtrend has started on the February 4. and is more than five weeks old. As the major trend is down, downtrends will last more and rallies will be short lived. Continue to trade short side especially in weak relative strength stocks and use minor rise for a day or two to take up fresh short positions in these stocks. Today I will take a look at some of the Infrastructure and Construction Companies.
Unitech was one of the leaders in the earlier bull run as the stock has registered smart gains in the past few years. The stock went into a major downtrend and has exhibited descending intermediate tops and bottoms and is staying below its 30 WMA. The relative strength line has also turned weak and has exhibited lower tops and bottoms indicating that the stock has started to underperform the indices. In these circumstances, investors must look for profits while traders can continue to trade on the short side with strict trailing stops. On the lower side, the stock has supports at 211 and 155 while the resistance is at 430. This is also the levels above which the major uptrend will be reinstated. The weekly MACD Histogram has been making descending tops and bottoms indicating that the stock will follow suit and will exhibit lower levels in the next intermediate decline.
IVRCL Infra
IVRCL Infra is performing in line with the indices as the relative strength line has been staying sideways for the past few months. Now, with the infrastructure and the construction sector seeing a steeper decline in the past few weeks, the stock is likely to follow suit and the relative strength line could weaken. The earlier intermediate bottom attained on the January 22 of 360 is the important support level and a drop below this level in the current intermediate downtrend will confirm a major downtrend for the stock. If this happens, than investors must look to book profits in the long positions held. The stock will have to move past 491 in the next intermediate uptrend if the major uptrend has to continue.
Hindustan Construction
Hindustan Construction has been falling sharply in the current intermediate decline as the stock is already trading below its 30 WMA and a drop below its earlier intermediate bottom of 115 will confirm a major downtrend for the stock. Like most of the stock in this sector, HCC has registered good gains in the last bull run and could correct sharply if the indices continue their intermediate downtrend. The weekly momentum indicators are weak and favor more downside. Investors must look for profits in the long positions held. The stock has a strong support at the 82.50 level.
For more details contact mayur_s@vsnl.com
