Bears made hay as panic gripped all the stock and commodity markets around the world. The indices and a majority of the stocks are in a strong intermediate downtrend, as the bulls are crushed as foreign institutional investors continued to be sellers. Important supports are broken with ease as even the staunch bulls have been wiped out, as any attempt by them to pick bottoms have been wiped out by the strong liquidation by FII?s. Many stocks are trading well below their book values and at extremely attractive valuations. Under these circumstances, investors can look to start buying in small phases of 10% to 20% in every 500-point decline by the Sensex.
In the bull markets, the stocks have a tendency to overshoot on the upper side and likewise in a bear market, the stocks will overshoot on the downside. How much they will over shoot is anyone?s guess. Investors following technical will usually want for the indices and the stocks to stabilise and form a higher intermediate bottom before picking long positions. Also, investors must remember that new sectors will emerge once a new bull run starts and currently it will be difficult to pick stocks as we are not aware of the new sectors which will take a lead.
Usually after such a strong fall, the indices will take a while before they form a bottom as the bottoming process takes a while. New leaders and new sectors will emerge once the current bear market ends. This is always the case of a new bull run and to predict which sector will lead in the next bull run will be difficult to predict as of now. They must either trade the markets in the direction of the intermediate trend or start picking up small quantities in frontline stocks.
In the last week, the Sensex lost 12.77% and the Nifty lost 15.95%. All the sectors, except the CNX IT ended in the red as the BSE Realty sector lost 30.96% and was followed by the BSE Metals sector, which lost 24.27%. The CNX IT sector ended 2.41% higher and was followed by the BSE FMCG sector, which ended marginally lower by 2.21%.
The earlier intermediate top by the Sensex is at 15,580 and by the Nifty it is at 4,650. These levels are quite far away and the next intermediate rise will certainly be a rally within the bear market. The equivalent level for the CNX Mid Cap index is at 6,016. The target for the Sensex to start an intermediate rally is at 10,750 and the target for the Nifty is at 3,255. The equivalent level for the CNX Mid Cap index is at 3,993. These targets will be lowered after a minor rise is followed by a minor decline.
Strong stocks and sectors, which had held out till now, have now started taking a beating. This is quite usual especially during the last phase of the bear market. The Nifty had made a major bottom of 2,595 in 2006 and the Nifty is at this level. Will this level hold or we will see the next support of 2,307 and 2,183 being tested? The Sensex has dropped below the 2006 lows and could be headed towards supports of the year at 7,656 and 6,955. I will discuss about the frontline stocks and see where these stocks have their supports.
Reliance Inds was one of the leading stocks in the earlier bull-run and now has been a leader in the current bear run. The stock remains well below its 30 WMA and after the vertical fall seen in the last few weeks in the stock, the stock is well below its 30 WMA. This means that the next bull run in the stock is not going to start in a hurry and will require quite some time to bottom out.
Under these circumstances, investors following the technicals will have to wait for a bottoming formation before picking long positions. However, investors following the fundamentals and looking at values may start finding values in these frontline stocks. Once the stock closes below 1,000, the next support is at 806.
ACC has been in a bear market earlier to the indices and has made a major top in October last year. The stock has been staying below the falling 30 WMA and though the decline in the last intermediate downtrend has been slower than the indices, the stock has been making descending intermediate tops and bottoms. Like discussed for Reliance Inds, the stock will take some more time before the bottoming process is over, the volume action will be the first to tell us if there is any change in the buying pressure. Currently, we are witnessing strong selling pressure. The next support to the stock is between 385 and 395.
State Bank of India
State Bank of India is the strongest stock in the PSU banking pack and even as the stock is in a major downtrend, the short-term relative strength is bullish, as the stock was one of the last to decline in the current intermediate downtrend. The next important support to the stock is at 1,007, which is the earlier intermediate bottom. See if this bottom holds and if it holds, investors can start picking up long positions in the next intermediate rally. Below 1,007, the stock has a support at 845.
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