After five down weeks, the indices ended higher in the last week, as the Sensex gained 12.50% and the Nifty ended 11.67%. Among the sectors, the most beaten down sectors are the ones which have gained the most, especially due to short covering, as the BSE Metals index ended 22.16% higher and was followed by the BSE Oil & Gas sector, which gained 20.27%. On the weaker side, the BSE Healthcare index was the largest loser, ending 1.17% lower and the BSE FMCG sector ended marginally lower by 1%. The rise in the last week by the indices and the stock has resulted in a few stocks getting back into a fresh intermediate uptrend, but the targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend are far away and are at 10,750 and 3,255 respectively. The equivalent level for the CNX Mid Cap index to get back into a fresh intermediate uptrend is at 3,993.
There are some lessons to be learnt in the current crash. The most important lesson is that a trader or investors must use stops for any position that one has picked. It is the most important principle which a trader as well as investors must follow. Look into your portfolios and see how many stocks are trading well below their purchase price. Though these are paper losses, an investor must stay away during a bear market and get in only when the market exhibits signs of a bottom. The market will bottom out six to nine months ahead of the economy and it is quite prudent for the investor to check the technicals, as they will be the first to reflect the change in the climate.
New sectors will emerge when a new bull run starts, as investors who are stuck with stocks in the earlier bull run in the strong sectors will be sellers in the new bull run. These investors are waiting for their price to come so that they can sell them and get out even. Thus, it is very important for the investor to stay in cash in the bear phase and deploy this cash in the right sectors when the market bottoms.
We have seen a sharp decline in the past few weeks and time-wise, the market will have to spend some time to digest the strong decline. The market, rarely if ever, traces out V-bottoms. Individual stocks can do it occasionally, but it would be highly unlikely for the entire stock market to turn on a dime. A violent bottom is likely to be retested a few months later on low volume.
Bear markets present fantastic buying opportunities. Prepare yourself to think of the incredible bargains you will be able to scoop up. New sectors will lead the next bull run and there is no point in looking at old leaders for the next bull run.
The earlier intermediate top for the Sensex and the Nifty are far away and are at 15,580 and 4,650 respectively. The next intermediate rise will not be able to move past these levels and hence the next intermediate rise will be a rally within the major downtrend and will be just a trading opportunity on the long side for traders. Investors will have to wait for a while before they exhibit a higher intermediate bottom or move past the earlier intermediate top. Few stocks have already gone into a fresh intermediate uptrend and traders can use the next minor decline in the coming week to get into some of these stocks.
Infosys has made an intermediate bottom on October 10, and since than the stock has been exhibiting ascending minor tops and bottoms. The stock is currently facing a resistance at 1,430 on the daily chart and once the stock closes past this resistance, it will move towards the next target of 1,600. Use the minor decline in the coming week to pick up long trading positions. Investors must stay from the stock as the major trend is down and the stock will take some time to bottom out, as the weekly momentum indicators are exhibiting descending bottoms, indicating a retest of the recent lows or a lower intermediate bottom in the next decline.
Like most of the stocks, TCS is also in a major downtrend, as the stock has been exhibiting descending intermediate tops and bottoms. The stock is staying well below its falling 30 WMA and the next intermediate rise will be a rally in the major downtrend and investors must stay away from the stock. The stock will have to close past 586 to get back into a fresh intermediate uptrend. The daily momentum indicators are exhibiting a positive divergence, indicating that the short-term momentum is improving and a minor decline in the coming week must be used by traders to pick up long positions in the stock. The stock has a resistance at 650 and 700, where traders must look for profits.
Wipro also saw a strong decline in the last month and could be starting a fresh intermediate rally. The stock will have to close past 302 to confirm that the intermediate trend has turned up. Now, as the stock has exhibited a lower minor bottom, the stops for the long positions are currently far away and traders will have to wait for the stock to form a higher minor bottom before getting into the stock. The stock has a resistance at 340 and 360, where traders can look to book profits.
For more details contact mayur_s@vsnl.com
