The indices have retraced 80% of the earlier minor rise, which occurred in Diwali as the Sensex took a support at the 8,350 and the Nifty at the 2,500 level before improving on Friday. The improvement on Friday came after seven down days and if these indices close below these supports, they are not only poised to test the lows made on October 27, but will also drop below these lows. The Sensex has made a low of 7,697 on October 27 and the Nifty has made a low of 2,252. A close below these levels will result in the Sensex testing the intermediate highs made in 2004 and 2005 of 6,955 and 6,250 respectively. A close by the Nifty below 2,252 will result in the Nifty testing the equivalent supports at 2,183 and 1,756 respectively.
The markets around the world remain weak as most of the markets are already making 5-year lows and our markets continue to follow them. After the strong bounce-back in Diwali, it was looking as if a rally has started and we could see higher levels; but the indices failed to exhibit rising minor tops and bottoms and as a result the intermediate downtrend, which had started on August 12 is still intact.
The targets for the Sensex and the Nifty to get back into a fresh intermediate uptrend are far away and are at 10,571 and 3,161.25 respectively. These values will be lowered to the levels at which the minor rise which has started on Friday ends. The equivalent target for the CNX Mid Cap index is at 3,867.50.
The Sensex has a resistance at 9,400 and the Nifty at 2,800 and we will see in the first part of the coming week, if the minor rise has legs to cross these resistance levels. If it does close past these levels, we could see higher levels, otherwise a test of the recent minor lows made on Thursday and the lows attained on October 27.
The earlier intermediate top for the Sensex and the Nifty are far away and are at 15,580 and for the Nifty it is at 4,650. As these levels are far away, the next intermediate rise will be a rally within the bear market and investors must stay away for some more time before looking for long positions.
The equivalent level for the CNX Mid Cap index to get back into a major uptrend is at 6,016.
In the last week, all the indices ended in the red as the Sensex lost 5.01% and the Nifty ended 5.17% lower. The BSE Realty sector was again the leader on the downside in the last week as it lost 18.20% and was followed by the BSE Bankex, which lost 10.80%. The BSE FMCG index was the least loser, ending 1.0% lower and was followed by the BSE Oil & Gas index, which lost 2.32% lower.
The FMCG sector is the only sector, which has not been declining at the rate at which the indices are dropping. Traders can look for long positions in these stocks if the minor rise started on Friday continues further.
Hindustan Lever is one of the very few stocks, which are in a major downtrend in the strong downtrend. The stock has not declined and moved higher at a lower pace in the past few months and hence the relative strength line for the stock is bullish. The stock has been oscillating about its 30 WMA, but as it has been exhibiting rising tops and bottoms, the major trend is up. A close past 238 will result in the stock heading towards the earlier minor top of 253.60 and the next strong resistance is at 260. Thus, if the current minor rise by the indices continues, traders can look for short-term long positions in the stock, with a target between 253 and 260.
ITC has been exhibiting a bullish relative strength even though the stock is in a major downtrend, as the rate of decline by the stock is lower as compared to the Sensex. The intermediate trend of the stock is up and traders looking for long positions can pick for a short term can take up long positions on a pull back towards 165. Keep a stop at 159 for this long position. On the upper side, ITC has a resistance at 180, where traders can book partial profits. A close past this resistance could take the stock to the next resistance, which is at 190. As the major trend of the stock is down, investors must stay away from the stock. On the downside, the stock has a support at 155 and 150.
Colgate Palmolive is another stock in the FMCG sector, which has been exhibiting a bullish relative strength as the stock has been trading sideways even as the indices are trending lower. The stock has a strong support at the 350 level and a strong resistance at the 450 level. A drop below 350 will result in the major trend turning down and a close past 450 will mean that the major trend has turned up. Traders can trade the stock in between these tow ranges. Investors must stay away.
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