Monday, May 16, 2011

Downtrend may have ended: Deepak Mohoni

Friday's rally helped the stock market finish last week flat, despite a sharp sell-off just a day earlier. The Sensex ended the week 0.07% or 12.47 points higher, while the Nifty finished 0.12% down. The CNX Midcap Index gained 0.87%. Hindustan Unilever was the biggest winner among index stocks with an 11.6% gain.

The other index stocks to rise included DLF , Bharti Airtel, ITC and Jindal Steel & Power with gains between 5.9% and 2.0%. Maruti Suzuki was the biggest loser among index stocks with a 3.5% loss. The other index stocks to go down included Mahindra & Mahindra, HDFC, HDFC Bank and Hindalco with losses falling between 2.9% and 1.6%.

Paramount Printpackaging was the biggest winner among the more heavily traded non-index stocks with a 39.4% gain. The other nonindex stocks to go up included SKS Microfinance , Ranbaxy Laboratories , Nitin Fire Protection Industries , HDIL, Suzlon Energy, Delta Corp and United Phosphorus with gains between 14.2% and 8.3%.

Kwality Dairy India was the biggest loser among the more heavily traded non-index stocks with a 26.5% loss. The other non-index stocks to go down included ARSS Infrastructure Projects, Shree Renuka Sugars, Muthoot Finance, Bank of India , Jet Airways , IDFC and Servalakshmi Paper with losses falling between 16.1% and 4.2%.


Friday's rally took the Sensex above 18,700 and the Nifty past 5,600 to suggest that the intermediate trend has turned up. However, both indices stayed above those levels only for a few minutes, and it may take another session or two for a clearer confirmation of an uptrend.

The CNX Midcap Index closed at a two-week high, and is probably in an intermediate uptrend already. Since this is a broader index, the odds favour the existence of an intermediate uptrend for the market as well. Most global markets are in intermediate downtrends now, though the European and American indices are still holding out. The Dow would go into a downtrend below 12,500.


Our long-term (major) trend is still up, which means that the bull market has survived despite a month-long intermediate downtrend. The bull market started on February 11 when the Sensex bottomed at 17,296. The Sensex and Nifty rose above their last intermediate tops and 200-day moving averages to signal a bull market, and several stocks had also done the same.

However, the Sensex and the Nifty are now well below their 200-day moving averages, putting the bull market at some risk. The last intermediate bottom for the Sensex was at 17,775, and a fall below that level would mean that the bull market has aborted. The market will look a lot healthier if the suspected intermediate uptrend is confirmed this week.


Existing portfolios should be held on to as we are in a relatively new bull market. Even the more volatile stocks are relatively safe for now, as the bull market has reduced the market risk. Further investments can be made now as the intermediate downtrend has run for well over two weeks. The correction has run longer than usual for a nascent bull market, but the risk for longer-term investments is still reasonably low.


The sell-off in commodity markets has placed most global stock markets in intermediate downtrends. The US indices have held out so far, and the Dow would fall into a downtrend if it goes below 12,500. Most global markets are in bull phases, though. Japan and Brazil are among the very few important markets that are in bear phases. The Dow would go into a major downtrend if it were to breach 12,000.

The Sensex gained 6.2% in the twelve months that ended on Thursday, up three positions to the 25th place among 35 well known global indices considered for the study. Sri Lanka continues to head the list with a 72.1% gain. Argentina, Indonesia, Chile and South Korea follow. The Dow Jones Industrial Average has gained 17.7% and the NASDAQ Composite has gained 19.6% over the same period. (These rankings do not take exchange rate effects into consideration).

(The author is an independent technical analyst
Source : ET

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