It’s gloom and doom all over in all the financial markets around the world, as a global meltdown occurs, as investors have no place to hide due to the witnessing of a continued unwinding of wealth. Central banks around the world are working in unison to stem the financial crisis but so far, their actions have had little effect. Here, RBI has reduced CRR rates by another 100 bps and the result was the same. The downside momentum is pretty strong and we could see some more declines before a start of an intermediate rally. The free fall continues as investors are devastated and are afraid of picking fresh positions. These are testing times for investors and though an intermediate bottom could be near, not many are venturing into picking long positions.
Usually, in times of gloom and doom, investors must start nibbling into the markets and start picking up small long positions in stocks, which have held out and which are exhibiting a bullish relative strength. They must scan the data base and look for stocks, which are still holding well above their July lows, while the indices are making new lows. These stocks and sectors will possibly lead in the next rally. It is impossible to pick bottom and with the indices having declined more than 50%, small long positions at this stage and at every decline of 5% to 10% could be used to pick up long positions in strong relative strength stocks. No one knows where the exact bottom is and it is a good time for investors to get back in a small way after having booked profits when the markets were looking extremely rosy. Once this capitulation ends, we will see a gigantic rally.
In the last week, the Sensex lost 15.95% and the Nifty ended 14.10% lower. All the sectors ended in red and the BSE Consumer Durables index lost 25.91% and was the largest loser and was followed by the BSE Realty sector, which lost 24.23%. The least losses were registered by the BSE Auto sector, which lost 10.91% and was followed by the BSE Oil & Gas sector, which lost 13.70%.
The indices fell on all the trading days in the last week and with such a sharp fall, the targets for the intermediate rally are far away. Currently, the targets for the Sensex to get back into an intermediate uptrend is at 13,204 and for the Nifty it is at 4,0050. The equivalent target for the CNX Mid Cap index is at 4,972.15. These levels will be lowered after a minor rise in the coming week is followed by a minor decline. The earlier intermediate tops are also quite far away and are at 15,580 for the Sensex and 4,650 for the Nifty. This means that the next intermediate rise will certainly be a rally within the major downtrend and will take some more time before the markets bottom out.
One of the sectors which have held out in the strong intermediate downtrend is the PSU Banking sector. Many stocks in this sector are still well above their July lows, while the indices are trading well below its earlier intermediate bottom. This, however, does not mean that these stocks will continue to exhibit strength, but investors must keep a track of these stocks and look for long positions in some of these stocks when the next rally starts.
State Bank of India
State Bank of India is trading below its falling 30 WMA and is in a major downtrend, but the stock is well above its earlier intermediate bottom of 1,007 attained in July and as a result the stocks relative strength line has been bullish. If the stock continues to stay above the earlier intermediate bottom and if the indices bottom out soon, there is a good chance that the stock could get back into a major uptrend ahead of the indices and continues to outperform. Thus, traders must keep a track of this stock and must start to pick up long positions in this stock when an intermediate rally starts. The stock will have to move past its earlier intermediate top of 1,639 for the major trend to turn up.
Union Bank
Like SBI, Union Bank is also exhibiting a bullish relative strength as the stock is holding well above its earlier intermediate bottom of 96.10 and is trading just below its 30 WMA. The weekly MACD histogram is above its trigger line and suggests that the momentum is bullish. In the past couple of weeks, the stock has been trading between 130 and 155 and a close past 154 will result in the stock getting into an intermediate uptrend and position traders and investors can look for long positions in the stock.
Bank of Baroda is another stock in the PSU Banking sector, which has been exhibiting a bullish relative strength as the stock is trading well above the July lows of 188.30. Again, once the indices form an intermediate bottom and start a rally, strong relative strength stocks will lead the rise and position traders and investors can look for long positions in the stock. The stock will have to move past its earlier intermediate top of 338 to confirm a major uptrend.
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