Market may remain positive

The market ended the week with fair gains, with the Sensex finishing 3.11% or 603 points higher, and the Nifty 3.67% up. However, the week belonged to the mid caps, with the CNX Midcap surging 6.02%. Reliance Energy was the biggest winner among the Sensex stocks with an 11.2% gain. The other gainers were Wipro, Reliance Communications, Cipla, DLF, Infosys and Mahindra & Mahindra, with gains between 6% and 10%.

Grasim was the biggest loser among the Sensex stocks with a 4% loss. ACC followed, with a 2.3% loss. Reliance Industries and Bajaj Auto were the only other Sensex stocks to decline, but with losses of less than half a percent. Chambal Fertilisers was the biggest winner among the more heavily traded non-Sensex stocks with a 36.6% gain. It was closely followed by Ispat Industries, Videocon Industries, Core Project, Wire & Wireless and Centurion Bank of Punjab — all of which gained 30% or more. GMR Infra was the biggest loser with a 5% loss. Electrosteel Castings, United Spirits and Voltas followed with losses between 2% and 4%.

Intermediate trend: The Sensex and Nifty are in intermediate uptrends since their November 22 lows. The CNX Midcap remained in an uptrend all that while. The intermediate uptrend will end if the Sensex falls below 18883, the Nifty below 5596 and the CNX Midcap below 7700.

The Sensex and Nifty have been moving sideways for the past seven weeks. The Sensex has swung between 18182 and 20238, which means it has stayed within 5.4% from the mean of that range. Hence, a more meaningful trend will develop once these indices emerge from their bands. However, the CNX Midcap has remained in a persistent uptrend, and has now gained almost 15% since the Sensex first crossed 20000 at the end of October.

Long-term trend: The market is in a bull phase even though the Sensex and Nifty have failed to reach fresh new highs with the regularity we saw until October. The bull market will end if the indices close below their previous intermediate bottoms. These stand at 18183 for the Sensex, 5394 for the Nifty, and 6463 for the CNX Midcap.

There is a possibility that we could be in a bubble. There are several instances of the market caps of purely speculative stocks exceeding those of well-established businesses. Also, there is a tendency for stocks to shoot up much too spectacularly on the slightest whiff of good news. Even so, the bubble can continue to grow for a while before it finally bursts.

Short-term outlook: Global markets are rising and we should be in for further gains this week — and the 20000 level could be finally left behind. A global reversal before that will change the picture. At the same time, we are tending to see sharp two-way moves, even though the rallies have delivered better returns.

Strategy: Fresh long and medium-term purchases should now be made only after the next intermediate downtrend ends, and provided the bull market continues. Stocks which are under-performing during this uptrend can be vulnerable when the uptrend ends.

These include Reliance Infrastructure, ACC, Zee Entertainment, Axis Bank, Grasim Industries, Hindalco, Ranbaxy Laboratories, ITC, Tata Steel, Hindustan Unilever, Religare Enterprises, Reliance Industries, ONGC, Century Textiles, Siemens, Suzlon Energy, Satyam Computer Services, ABB, Sesa Goa and Larsen & Toubro.

The intra-day range for the indices had been small early last week, but has now started increasing. This should provide intra-day traders with some trading opportunities, but with closer than usual trailing stops, as the market is tending to fluctuate both ways inside a session.

Swing traders should favour the long side as the intermediate trend is up and overnight risk is not particularly bad. Please note that all forms of short-term trading will succeed only with a proper risk and money management strategy.

Global perspective: Most global indices are now in intermediate uptrends. The Dow will end its uptrend if it breaches 13140. The Nikkei had reached a 14-month low during the last downtrend, and is clearly in a bear market. Most European indices made lower intermediate tops during the last downtrend, and their bull phases are threatened. A closing below its last intermediate bottom of 12700 will signal a bear market for the Dow, and such an event could well trigger a global bear market too.

The Sensex’s gain for ’07 (until Thursday) stands at 43.6%, making it the sixth best performer among 40 well-known global indices considered for the study. Shanghai continues to head the list with an 88.2% gain. Indonesia, Hong Kong, Brazil and Turkey follow, with gains between 43% and 55%. (These rankings do not take exchange rate effects into consideration). The Dow Jones Industrial Average has gained 9.3% and the Nasdaq Composite 12.2% during the same interval.

Via Economic Times