The intermediate downtrend was confirmed in the last week as the indices dropped below their earlier minor bottoms and have started to correct. Few stocks have been correcting while many stocks are still exhibiting strength and are in an intermediate uptrend. This has resulted in a weak intermediate downtrend as the Sensex is heading closer to its support of 16,611 and 16,427. The Nifty has supports at 4,957 and 4,882. Only a weekly close below 16,427 by the Sensex and 4,882 by the Nifty will result in lower levels. Currently as not many stocks and sectors are correcting, the possibility of the weekly supports holding on are high.
The strength by the Dollar Index is one of the reasons of the weakness in the world commodity and stock markets. In the last week, the Sensex lost 2.33% and the Nifty ended 2.53% lower. The CNX Mid Cap index ended 1.88% lower. Among the sectors, the BSE Healthcare index was the largest gainer ending 3.76% higher and was followed by the BSE IT Sector which gained 2.98%. On the weaker side, the BSE Bankex was the largest loser ending 5.57% lower and was followed by the BSE Reality sector which lost 5.45%.
The weekly MACD Histogram for the indices has been exhibiting a negative divergence and with the daily MACD already in the sell mode, it is very likely that the indices are headed lower towards the weekly support of 16,427 by the Sensex and 4,882 by the Nifty. Only a close below these levels on a weekly basis will mean lower levels for the indices. Currently, not many stocks are trending strongly on either side, and the probability of these supports holding is higher unless the other world markets drop sharply. One of the main reasons of the current decline is improvement in the US Dollar Index. This index is headed towards the next target of 79 in the coming week and will result in weakness in the world stock markets.
The earlier intermediate bottom for the Sensex is at 15,330 and for the Nifty it is at 4,538. As long as the current intermediate downtrend ends above these levels, the major uptrend remains intact. Only a close below these levels will mean an end to the major uptrend. The equivalent level for the CNX Mid Cap index is at 6,370.
The target for the Sensex and the Nifty to get back into an intermediate uptrend is at 17,352 and 5,183 respectively. The equivalent target for the CNX Mid Cap index is at 7,423. This will be lowered to 7,268 after the index drops below Friday?s low.
The banking sector has lead the current intermediate downtrend and we could more weakness in this sector as long as the intermediate trend remains down. I will take a look at some of these stocks and traders can trade on the short side in this sector as they are headed lower. The bank Nifty is headed towards the weekly support of 8,470 and below this level, the index has no nearby support and could be bad for the frontline indices.
ICICI Bank is in an intermediate downtrend and has been underperforming the indices in the past few weeks. Even though the indices tested their October highs in the last intermediate uptrend, ICICI Bank was unable to move closer to its earlier intermediate top and has dropped into an intermediate downtrend exhibiting a lower intermediate top. This is the first sign of weakness and a close below the earlier intermediate bottom of 756 will confirm a major downtrend for the stock. The stock is already below the weekly support of 840 and is headed lower to test the earlier intermediate bottom. Use 832 as the stop for the short positions in the stock.
BOI is another stock in the banking sector which did not move closer to its October intermediate highs and has now dropped into an intermediate downtrend. Thus the stock has exhibited a descending intermediate top and a close below its earlier intermediate bottom of 316.65 in the current intermediate downtrend will confirm a major downtrend for the stock. The relative strength line for the stock is already weak and position traders must hold on to their short positions with a stop at 373. Trail this stop as the stock moves lower.
IOB is another stock in the banking sector which has been exhibiting a weak relative strength and like the other stocks discussed today, IOB has also exhibited a descending intermediate top. The stock is below the weekly support of 108 and is headed lower in the current intermediate downtrend. Traders must look for weak relative strength stocks for short positions in an intermediate downtrend as these stocks will exhibit a lower bounce on the upside. Keep a stop of 111 for the short position and trail the stop lower.
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