The indices have made descending minor tops indicating that the intermediate trend is down and the indices have made an intermediate top on May 5. This will be confirmed once the Sensex drops below its target of 16,546 and the Nifty below 4,913. The equivalent target for the CNX Mid Cap index is at 6,759. The indices have been making descending intermediate tops and bottoms and once these indices drop below their targets in the coming week, we will have a lower intermediate top for the indices. The current decline by the indices has been triggered by spurting oil prices and weakness in the stock markets around the world. The decline by the indices have been low volumes and if the indices can form a higher intermediate bottom once they break down below their targets, then we will have a first criteria for a new bull market, that is rising bottoms. Thus we will keep a close watch at the indices in the intermediate correction.
The earlier intermediate bottoms for the Sensex is at 14,677 and for the Nifty it is at 4,468. Once the indices drop below their targets, the intermediate downtrend will be confirmed and if these indices were to drop below the earlier intermediate bottoms, the major trend will remain down and the bear market will continue. On the other hand, if the indices make a higher intermediate bottom, we will then keep a watch on the volume action and the money flow indicators, as they will be the first to indicate a possibility of a change in the major trend.
In the coming week, the Sensex has a support at 16,440 and 16,050. We will like to see the Sensex taking support at one of these levels. The equivalent levels for the Nifty are at 4,820 and 4,750. In the coming weeks we will keep a watch at these levels.
In the last week, the Sensex declined by 4.50% and the Nifty by 4.09%. The CNX Mid Cap index dropped lower by 2.95%. Among the sectors, the BSE Bankex was the weakest, as it lost 7.93% in the last week and was followed by the BSE Reality sector, which lost 6.64%. The sectors, which held out in the last, were the BSE Consumer Durables, which ended 0.04% higher and was followed by the BSE Metals index, which lost 1.19%.
Cement stocks remain weak and with the intermediate trend of the indices down, these stocks are likely to make new lows. Investors must avoid these stocks as of now and allow basing formation in these stocks before picking up long positions in these stocks. I will take a look at some of these stocks today.
ACC was an underperformer since last Diwali, as the stock has been making descending intermediate tops and bottoms and has been staying below its 30 WMA, which has started falling. The relative strength line has been weak even though the indices made a major top in October 2007, the relative strength line had made a major top in December 2006, indicating that the stock was weak and has been underperforming since the past one and a half years. The stock is in an intermediate downtrend and has not performed in the intermediate rise since March, indicating that the stock will soon test its earlier bottom at 615, where it may find some support. Investors must avoid long positions in the stock as of now and wait for the stock to make a nice base and the relative strength to improve before picking long positions.
Ambuja Cement
Amuja Cement is now making 52-week new lows and is one of the biggest underperformers in the cement sector. The relative strength line is also making new lows, indicating that the stock continues to under perform the indices and such stocks must be avoided even if the indices bottom out and start a major uptrend. The stock has a support at the 99 level and if this support breaks, we are likely to see much lower levels. The weekly MACD indicator remains below its trigger line, suggesting that the momentum is on the downside. With the stock well below its 30 WMA, the long-term moving average will act as a resistance to the next intermediate rally.
Ultratech Cement
A majority of the stocks in the cement sector are underperforming the indices and there are no immediate signs of these stocks making new bases. Ultratech Cement is making 52-week new lows and the relative strength line for the stock has been exhibiting descending tops and bottoms since last Diwali. The stock must first stop falling for the relative strength line to improve and only after that we may see some base building by the stock. The stock is currently at the support of 660 and a fall below this level will result in the stock testing the next supports at 599 and 500. Investors must stay away from the stock as of now.
For more details contact mayur_s@vsnl.com