The Sensex and the Nifty dropped into an intermediate downtrend, while the CNX Mid Cap Index is still above its intermediate downtrend level of 3,547 and a close below this level will confirm, that the intermediate trend has turned down and the intermediate rally which had started in the first week of December, has ended. For the Sensex and the Nifty to re-instate the intermediate uptrend, they will have to move back above to 10,174 and 3,111 respectively.
The major trend of the indices remains down as the indices continue to exhibit descending intermediate highs and lows. Once the CNX Mid Cap Index drops below its trigger of 3,547, the intermediate downtrend will again be confirmed and the highs attained on December 22 will be the new intermediate levels for the indices. These will also be the new targets for the indices to get back into for a major uptrend. Currently, the targets for the Sensex and the Nifty to get back into a major uptrend are at 15,580 and 4,650 respectively. The equivalent level for the CNX Mid Cap Index to get back into a major uptrend is at 6,016.
After the sharp decline in September and October, we have seen an intermediate rally taking the Sensex just above the 10,000-level. The intermediate rally was quite mild as traders looked for small profits on the long side. The statistical volatility which was very high has been on the decline and as a result there have been smaller swings in the past two months. High volatility begets low volatility and vice versa. Thus, from the current low volatile conditions, we will soon see a rise in volatility. This will also result in a good trend from the current very mild trend. The Sensex and the Nifty have a support at 9,020 and 2,750 respectively. These indices have made a higher minor high and once they make a lower minor high, traders can look for short positions as the stops will be nearby. This is likely to take some more time and the trend will remain mild till such time and traders must look for small positions in these conditions. Once we see a rise in volatility, the trend will strengthen and positions can be taken up.
Now, as the major trend of the indices is still down, investors must stay sideways for some more time. The indices have been in a sharp decline since January and have lost 63% in the current bear phase. The price correction may have been over, while the time correction is yet to happen. Investors must now start keeping a track of strong relative strength stocks which are now not falling in line with the indices. Keep a track of these stocks and once the indices bottom out, these stocks could lead in the next bull run. Also keep a close watch on the volume action as currently there is a decline with strong volumes and rises with thin volumes. Once this reverses, money flow indicators will turn positive and signal the sign of a new bull run.
In the last week, the Sensex ended 7.63% lower and the Nifty lost 7.16%. The realty sector which had lead the rally started to lead the decline as the BSE Realty index was the largest loser ending at 12.85% lower followed by the BSE Metals index which lost 8.92%. The sectors which have registered a lower percentage loss were the BSE Healthcare Index which lost 2.45%, followed by the BSE FMCG Index which lost 3.67%. Tech stocks have not participated in the last intermediate rally and could take a lead on the downside if the indices start falling sharply. This will give traders an opportunity to trade on the short side in this sector. We will take a look at some stocks in this sector.
Infosys did not participate in the earlier intermediate rally and just drifted sideways as the indices and many stocks rallied in December. Thus the short term relative strength for the stock has turned weak and could lead the decline once it drops below its support levels. On the daily chart, the supports are between 1,078 and 1,088 and a close below this zone will confirm an intermediate downtrend. The stop for the short positions is far away at 1,204 and a lower minor high will lower this target. On the weekly chart, the stock has a support at 930 and could decline to this level once this support zone is broken. Look for a trade on the short side. Investors must currently stay away from the stock as the major trend remains down and the relative strength weak.
TCS is another stock in the tech sector which has not participated in the intermediate rally and is closer to its earlier intermediate low. The stock traded sideways in November and as a result the relative strength line for the stock was weak. The stock has a support between 455 and 465 and a close below this level will confirm that the intermediate trend has turned down and position traders can look for short positions in the stock. Currently the stop for this short position is at 519 and this will be lowered one the stock after the next minor rise. On the weekly chart, the stock has a support at 340 and the stock could decline to this support level.
The formation on all the three charts discussed today are similar. Wipro is also trading sideways in the current month and did not participate in the intermediate rally. The stock has a support between 218 and 221 and a close below this support will mean lower levels towards the weekly support of 145. Keep a close watch on these stocks and look for short positions if the stock and the indices gain momentum on the downside.
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