The intermediate downtrend which had started on the May 5, is still intact as the indices continue to exhibit descending minor tops and bottoms. The intermediate downtrend is already eight weeks old and could last for some more time as oil has broken out of the sideways formation and is headed towards the $148-150 soon. The rise in oil has had a negative impact on all the markets around the world.
Our indices are making new yearly low and have been exhibiting descending intermediate tops and bottoms. This confirms the continuation of the major downtrend and the bear market since January. Majority of the markets around the world are also in an intermediate downtrend and are also in a major downtrend i.e. a bear market. Bear markets here have lasted for six months to more than one and a half years. The current bear market is already six months old and there are no immediate signs of the current major downtrend ending.
As bull markets have a tendency to overshoot on the up side, bear markets usually overshoot on the downside before they bottom out. When this overshoot happens, small investors panic and are the last ones to get out while smart investors will start looking for strong relative strength sectors and stocks and start picking up. The change in the volume action will be the first sign for investors to look out for. Currently, we are seeing strong volumes on the ?down? days and thin volumes on ?up? days. This will reverse and when the major trend is in for a change, the money flow indicators will turn positive as the volume action on up days will be higher than the volume action on the down days.
The earlier intermediate top for the Sensex and the Nifty are at 17,736 and 5,299. These will have to be crossed in the next intermediate rise, if the major trend has to turn ?up?. As these levels are far away, this is not likely to happen soon and the next intermediate rise will be a rally within the major downtrend. The equivalent level for the CNX Mid Cap index is at 7,192.40.
When the indices were falling in the last week, there were gaps created and these gaps will act as resistance to the next intermediate rally. The gaps by the Sensex are between a)14,128 and 14,197, b)14,511 and 14,519 and c)15,260 and 15,391. The Nifty does not show any gaps and we do not have equivalent levels for the Nifty. The Nifty futures has gaps between a) 4,179 and 4,225 and b) 4,524 and 4,556. These gaps will act as strong resistance levels to the next rally which the traders must keep in mind.
The targets for the Sensex and the Nifty to gat back into a fresh intermediate uptrend are at 14,450 and 4,325 respectively. The indices will have to move past these levels to confirm a start of an intermediate rally. The equivalent level for the CNX Mid Cap Index is at 5,698.
The Sensex is at the strong support level of 13,780 and the Nifty above its support of 4,000. A close below these important supports will mean lower levels for the indices in the current intermediate downtrend.
Though the indices are exhibiting descending intermediate tops and bottoms, not all stocks are following suit. Few sectors and stocks are still well above the earlier intermediate bottoms and once the intermediate rally starts, these stocks should be picked up. I will discuss some such tech stocks.
Infosys is one of the few stocks which is still in a major uptrend and in the current intermediate downtrend, the stock has been pulling back towards its 30 WMA. As the major trend of the stock is up, this long term moving average will generally act as a support and once an intermediate bottom is formed, traders and investors can pick up long positions in the stock. The weekly MACD histogram has made a higher top in the earlier intermediate rise suggesting that the stock will follow suit in the next intermediate uptrend. Thus keep a close watch and pick up long positions once the stock goes into a fresh intermediate uptrend. Currently, the targets for the stock to get into an intermediate rise is at 1,798. This will be lowered as the stock continues to exhibit descending minor tops and bottoms.
Satyam Comp
Like Infosys, Satyam Comp. is also in a major uptrend as the stock had closed well past its earlier intermediate top in the last intermediate rise. Currently, the stock has been in an intermediate correction and is pulling back towards its 30 WMA. The relative strength line for the stock is bullish as the stock has been outperforming the indices and such stocks must be watched by the investors in the current bearish conditions. The investors must hide in such stock till the indices bottom out and than look for new sectors which start a new bull run. The target for Satyam to get back into a fresh intermediate uptrend is at 464.50 and this target will be lowered as the stock continues to exhibit descending minor tops and bottoms. Pick up long positions once the stock starts a fresh intermediate uptrend.
I-Flex
I-Flex is another stock which is in an intermediate uptrend and the major trend of the stock is ?up?. The relative strength line for the stock is bullish and as the intermediate trend of the stock is ?up?, any pull back towards the support between 1,200 and 1,250 can be used by position traders and investors to pick up long positions in the stock. Keep a stop at 1,180 for this position. The stock is in a major uptrend and higher levels will be seen once the indices bottom out and start a fresh intermediate uptrend.
For more details contact mayur_s@vsnl.com
