Select picks for your portfolio

Written by Mayur Shah | Updated: Apr 27 2008, 07:50am hrs
Another consecutive bullish week as the Sensex gained on all the days while the Nifty gained on four out of five days. After trading sideways for three days, the indices broke out on the upper side with moderate trading volumes. The trading volumes were bullish on three of the five trading days and Fridays breakout with moderate trading volumes suggest that the intermediate uptrend is a rally within the major downtrend.

The earlier intermediate tops for the Sensex and the Nifty are at 18,896 and 5,545.20 and these levels will have to be crossed in the current intermediate rise for the major trend to turn up. The equivalent level for the CNX Mid Cap index is at 7,814.

The current intermediate rise has been going on since the March 18, when the Sensex made an intermediate bottom on the 14,677 and the Nifty at 4,468. The higher the indices go, in the current intermediate rise, the higher the probability that the next intermediate decline could make a higher intermediate bottom, confirming that the major trend is up and these bottoms also become the major bottom for the new bull run.

The US market, which was the reasons for the decline, in most of the stock markets around the world have made a nice, Inverted head and shoulder pattern and the DJIA is headed higher.

This does mean that our indices are likely to follow suit unless we have some big negative surprises from the government policies. The bullish formation on the DJIA suggest that worst for the markets could be behind us and this will be confirmed once our indices make a higher intermediate bottom in the next intermediate decline.

On the upper side, the sensex has resistance at 17,200, 17,980 and 18,750 before it could test its earlier intermediate top of 18,896. The nifty has resistance at 5,200 and 5,420 before it will test its earlier intermediate top of 5,545.20. Watch for these resistance levels to see if an intermediate top is forming at these levels.

On the lower side, the sensex had gapped upwards on last Monday and the gap between 16,570 and 16,589 is still unfilled. This gap will now act a support to any minor decline in the coming week. The nifty does not show any gap as the NSE does not allow gaps.

In the last week the Sensex gained 3.91% and the Nifty improved by 3.09%. The CNX Mid Cap index gained 2.36%. Among the sectors, the BSE Metals index gained 7.33% and was followed by the BSE Bankex which gained 6.90%. On the weaker side the CNX IT index was the largest loser ending 3.22% lower.

Today I will not discuss any sectors but will take a look at a few stocks which have outperformed in the current bull run. These stocks will take a lead in the next bull run if the indices bottom out at or above the earlier intermediate bottom.

Hero Honda

Hero Honda is one of the few stocks which has made rising intermediate tops and bottoms and has broken above its earlier intermediate top with a strong volume. The stock is now at the next important resistance of 807/809 and is headed higher, once the stock closes well past this resistance zone.

The breakout with strong volumes is bullish indicating that the bulls have become active in the stock. The relative strength of the stock has been exhibiting rising tops and bottoms indicating that the stock is outperforming the indices. Investors can pick up long positions at the current levels with a stop at 728. Raise this stop as the stock moves higher. On the upper side, the resistances to the stock are at 898 and 950.

Cairn India

Cairn India is one of the very few stocks which has tested the last January highs of 268 and has outperformed the indices in a big way. This has resulted in a very strong relative strength line indicating that even as the indices were dropping, the stock was moving higher. The weekly MACD indicator has moved past its trigger line indicating that the momentum is on the upper side and any pull back or a correction towards the support of 235/240 can be used by investors to pick up long positions in the stock. As long as the relative strength is strong and the money flow indicator remains bullish, stay invested in the stock as the stock is soon headed to close past its 52 week high.

BRFL

BRFL is another stock which has moved closer to its January highs of 401 and as a result the relative strength is bullish and is exhibiting rising tops and bottoms. Once the stock closes past its earlier major top of 401, it will move into the new high territory with no overhead resistances. Investors must use the next intermediate correction or a higher intermediate bottom to pick up long positions in the stock. The trading volumes are currently low and should pick up once the stock makes a higher intermediate bottom.

For more details contact mayur_s@vsnl.com