The indices dropped below their respective targets in the last week and after taking a support at the 61.8% retracement levels, the indices bounced back smartly on Friday. A close past 9,413 by the Sensex and 2,853.25 by the Nifty will result in an intermediate uptrend. Thus, the intermediate trend, which had turned down in the last week, is likely to reverse the trend and this will result in the intermediate trend being ambiguous. The CNX Mid Cap index will have to move past 3,533.55 to get back into an intermediate uptrend.
The earlier minor tops by the Sensex and the Nifty were at 10,470 and 3,147.20. If the indices were able to move past these levels after moving above their respective targets, it will mean the reinstating of the intermediate uptrend, which had started on November 20.
On the other hand, if the Sensex drops below 8,946, then, the intermediate downtrend would be reinstated. The equivalent level for the Nifty is at 2,701. Now, these are the important support levels and a close below these levels will confirm an intermediate downtrend.
The indices had made a lower intermediate top in the last week on January 7, with a Sensex high of 10,470 and the Nifty high at 3,147.20. As we are in a major downtrend, this level will be the next level above which the indices will have to go in the next intermediate uptrend if the major trend has to turn up. Also, a higher intermediate bottom above the October lows will be the first confirmation of the indices going into a major uptrend.
On the weekly chart, the resistance for the Sensex is at 10,754 and for the Nifty it is at 3,255. As long as these indices stay below these levels, the medium term remains weak and the major downtrend continues. The supports exist at 6,850 for the Sensex and 2,070 for the Nifty. Thus, if the indices are unable to hold on to the October lows in the next intermediate downtrend, then these indices will drop to these weekly support levels.
The Sensex declined by 0.88% and the Nifty by 1.55% in the last week. Among the weak sectors we saw the BSE Realty sector take a lead for a second successive week, as it declined by 7.53% and was followed by the BSE Bankex, which lost 6.38%. On the bullish side, the BSE Oil & Gas sector gained 2.70% and was followed by the BSE IT sector, which gained 2.49%. Scores of stocks have dropped into an intermediate downtrend in the last week, suggesting that the intermediate trend is down. However, if the Sensex and the Nifty were to move past their respective highs attained on January 14, then the intermediate trend will be ambiguous and we will have to wait for the coming week before clarity is seen. Till such time, just day trade and avoid position trades. Under these conditions, I will discuss a few pivitols today.
Larsen & Toubro
Larsen & Toubro remains in a major downtrend, as the stock has been exhibiting descending intermediate tops and bottoms. The stock is currently at its earlier intermediate bottom and has taken a support at the zone between 660 and 680. The stock has a resistance at the 770 level and the lower minor top in the coming week will be an excellent opportunity for traders to look for short positions. A drop below 660 will result in the stock heading lower and the next support to the stock is at 475. As long as the stock stays below 904, the medium-term trend remains weak.
TCS is trading sideways between 455 and 592 since October and has not participated in the intermediate rally, which had started in October. As a result, the relative strengthline for the stock is weak. The stock is trading sideways and a drop below 455 will result in lower levels and the continuation of the major downtrend.
The stock will have to move past the strong resistance of 570-592 to confirm that the major trend is turning up. This is not likely to happen unless the indices bottom out and go into a major uptrend.
Reliance Capital is already at the October lows, while the Sensex and the Nifty are still above them, indicating that the stock is weaker than the indices. The relative strengthline for the stock remains weak and is making new lows and a minor rally in the coming week will set up a good rally for such weak stocks, as swing traders and position traders can look for short positions in the stock. Investors must stay away from the stock as the major trend is down and the relative strength weak.
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