Strong volume growth could spur momentum

Written by Mayur Shah | Updated: Sep 1 2009, 05:17am hrs
The indices improved for the second successive week as trading volumes improved for the first time in a number of weeks. The indices gained on all the days in the last week as the Sensex is headed towards the first resistance 16,165 and the Nifty towards the resistance of 4,800. The strong volumes in the past four up days suggest that the bulls are quite strong and any minor decline in the coming week will be an opportunity for traders to look for long positions. It is the first time after a number of weeks that the volume action has turned positive and this indicates higher levels in the current bull run.

The Sensex gained 4.47% and the Nifty ended 4.49% in the last week. The activity was stronger in the mid cap and the small cap stocks as the BSE Mid Cap index gained 5.48% and the BSE Small Cap index gained 7.72%. All the sectors ended in green and the BSE Realty index was the largest gainer ending 10.88% higher and was followed by the BSE Consumer Durable index which gained 8.17%. On the weaker side, the BSE Bankex registered the lowest percentage gain as it ended 1.40% higher and was followed by the BSE FMCG index which gained 2.27%.

On the lower side, the Sensex has a support at 15,400 and the Nifty has support at 4,565 and as long as any pull backs end above these levels, the intermediate trend will remain up and higher levels towards the next resistance will be seen. Above the resistance of 16,165, the Sensex has a weekly resistance at 17,235 and the Nifty has a resistance at 5,095 above its resistance of 4,800. Thus, a strong close above the resistance of 16,165 and 4,800 by the Sensex and the Nifty will result in these indices moving higher towards the next resistance level.

The targets for the Sensex and the Nifty to drop into a fresh intermediate downtrend are far away and are at 14,684 and 4,353 respectively. The equivalent target for the CNX Mid Cap index to drop into a fresh intermediate downtrend is at 5,692.35. A minor decline followed by a minor rise will raise these targets.

The earlier intermediate bottom for the Sensex is at 14,684 and as long as the next intermediate correction does not drop below this level, the major uptrend of the indices will resin intact. The equivalent level for the Nifty and the CNX Mid Cap index is at 4,353 and 5,692 respectively. These are also the intermediate downtrend targets currently.

With the possibility of the indices moving higher as suggested by the strong volume action in the last week, few stocks could be breaking out of their sideways mode and will be heading higher. I will take a look at some of these stocks, which, position traders and investors can look for long positions.

IFCI went into an intermediate uptrend on Friday with a strong surge in trading volume indicating that the bulls have entered the stock and are active in the stock. The stock has a resistance at 57.50 and 57.75 and a close above these levels will mean that the stock is headed higher towards the next target of 66. Traders and investors can look for long positions at the current level with a stop at 50 and 45 respectively. The weekly MACD histogram for the stock had made a higher top in the earlier intermediate top indicating that the stock will soon close past the resistance of 57.75 and move higher.

Crompton is in a major uptrend like most of the stock and the indices and after making a higher intermediate bottom in the last week, it zoomed higher with a strong surge in trading volumes. The strong volume action suggests that the stock is headed higher and use any minor decline in the coming week to pick up long positions. The weekly MACD histogram had made a higher intermediate top in the last week indicating that the stock is headed higher and the next target for the stock is at 368 where position traders and investors can look for profits. The strong volume action indicates a strong money flow.

Welspun Gujarat has exhibited good strength in the last week and has been in a strong intermediate uptrend even though the metals stocks were subdued. The trading volume has been strong and suggests a bullish money flow. As the stock has seen a strong rise in the last week, position traders and investors must look for long positions after a minor decline in the coming week. The support to the stock is at 221 and any pull back towards this support must be used by traders to pick up long positions. The target for the stock is at 278 and at this level, traders can look for profits in their long positions.

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