Markets near intermediate bottom level: ET

Markets near intermediate bottom level

The market finished lower for a seventh successive week, with the Sensex ending 2.92% or 348 points lower, and Nifty losing 2.92% and CNX Midcap falling 4.98%. However, the statistic hides two rallies during the week that added up to 1,063 Sensex points.

BHEL was the biggest winner among Sensex stocks with an 8.7% gain. Other winners with gains between 7.5% and 2.4% included Jaiprakash Associates, ONGC, Satyam, L&T, Ranbaxy, Infosys and NTPC. ACC was the biggest loser with a 17.5% loss. Other losers were Maruti Suzuki, Grasim, Reliance Energy, Tata Steel, Tata Motors, Ambuja Cements and ICICI Bank with losses between 14.7% and 8%. Triveni Engineering was the biggest winner among non-Sensex stocks with a 23.6% gain. Other non-Sensex winners with gains between 14.3% and 5.9% were India Infoline, Orchid Chem, i-flex solutions, Renuka Sugars, Praj Inds and Gokul Refoils. Recently listed Niraj Cement was the biggest loser among non-Sensex stocks with a 58% loss. Other losers were MVL, Pyramid Saimira, Gwalior Chemicals, JSW Steel, Sejal Architectural Glass, Adlabs Films, MRPL, Rajesh Exports and Gujarat NRE Coke with losses between 27.5% and 16.9%.

INTERMEDIATE TREND: The intermediate downtrend that began on May 5, when the Sensex reversed downward after peaking at 17736, persists. But the two bouts of strong buying on Wednesday and Friday suggest an intermediate bottom is a possibility around current levels. The levels above which the downtrend will end remain 14450 for Sensex, 4325 for Nifty, and 5698 for CNX Midcap. Global indices are also in intermediate downtrends. The Dow has to cross 12400 to begin an intermediate uptrend.

LONG-TERM TREND: The indices made fresh bear market lows last week, and remain in major downtrends. This means we are still in a bear market. The market’s long-term trend will turn up if the Sensex closes above its last intermediate top of 17736, Nifty above 5300, and CNX Midcap above 7192. Global indices are also in major downtrends, but most have remained above their last intermediate bottoms. Indian and Chinese indices breached their last lows a few weeks ago, and the Dow did so more recently. Some European indices followed suit last week. The odds can shift in favour of a global bull market if the current intermediate downtrends end in higher intermediate bottoms for most indices. The Dow will enter a bull market by closing above its last intermediate top at 13200.

TRADING & INVESTING STRATEGIES : Long-term investors should wait for this intermediate downtrend to end. But some exposure can be taken as the downside risk is reduced with the Sensex having fallen almost 40% from its January high. A 25% exposure with a pessimistic 20% downside risk presents only a 5% portfolio risk. Banks, realty, construction and capital goods are still in long-term downtrends, and should be avoided. Software and pharma scrips and are not falling as heavily, and are better suited for long-term investing. The intermediate downtrend is now nine weeks old, and day-trading may work better then swing trading, as abrupt changes are occurring frequently.

GLOBAL PERSPECTIVE: All major international markets are in intermediate downtrends, and also lost further ground last week. But the March lows have not been violated yet for most markets. The Sensex has lost 12% in the 12 months that ended on Thursday, taking it to 12th spot among 40 well-known global indices. Egypt continues to head the list with a 18.7% gain. Russia and Brazil are next. The Dow has lost 16.9% and Nasdaq 15.1% over the same interval. (The author is an independent technical analyst)
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Source: The Economic Times