Monday, March 30, 2009

The persistent rally of stock market

The stock market
enjoyed an unusually strong week with the BSE Sensitive Index finishing 12.06% or 1,081.81 points higher, and the Nifty ending
10.74% up. The CNX Midcap Index underperformed the main indices with a relatively modest gain of 5.77%.

Tata Steel was the biggest winner among the index stocks with a 26.9% gain. The other index stocks to go up included ICICI Bank, HDFC Bank, Sterlite Industries and State Bank with gains falling between 19.3% and 18.0%. None of the index stocks declined last week.

Unitech was the biggest winner among the more heavily traded non-index stocks with a 33.2% gain. The other non-index stocks to go up included PNB, Aban Offshore, Lanco Infratech, Axis Bank, Sesa Goa, JSW Steel and Yes Bank with gains falling between 32.4% and 23.6%.

Akruti City was the biggest loser among the more heavily traded non-index stocks with a 51.6% loss. The other non-index stocks to go down included Edserv Softsystems, MindTree, Crompton Greaves, Tulip Telecom, Everonn Systems , Firstsource Solutions and Gujarat NRE Coke with losses falling between 22.1% and 2.9%.

Intermediate Trend

The market remains in the intermediate uptrend which started on March 6 when the Sensitive Index made a bottom at 8,047. The levels below which the uptrend would end are now a considerable distance down at 8,867 for the Sensitive Index, 2,739 for the Nifty and 3,190 for the CNX Midcap Index.

These would be revised upwards to the level where the next minor decline bottoms out. Most global markets are in fairly strong intermediate uptrends, and are typically somewhere between their one-month and three-month highs.

Long-Term Trend

The market's long-term trend is down. The index has been in a 3,300-point range between 7,700 and 11,000 since the end of October, without any clear sequence of rising or falling tops and bottoms. It would therefore be best to take 11,000 as the level to cross for the Sensitive Index for a bull market confirmation. The corresponding level for the Nifty is 3,250, and that for the CNX Midcap Index is 4,000. (Figures have been rounded upwards).

Almost 25% of the market's heavily traded stocks are now at two-month highs or better, and over 15% are above their 200-day moving averages. These could be the first signs that the bear phase may have already ended. In any event, quite a few stocks may have already left the worst behind them.

Trading & Investing Strategies

The market is currently in an intermediate uptrend, and long-term investing should be put on hold until the next intermediate downtrend develops and has run for a week or two. It will be a good idea to hold on to past and recent investments, and not get out of them as this rally progresses. This portfolio building exercise suggested over the last few months is simply to buy stocks at low levels, and not in anticipation of an early end to the bear market - even though this now looks like a distinct possibility.

Global Perspective

The major trends of all global markets remain down, but the intermediate trends of almost all the markets are up. The Dow would enter a bull market (major uptrend) if it were to climb above 9,500. The Shanghai Index has crossed its 200-day moving average, and a global bull phase will become a real possibility if other indices follow suit.

The BSE Sensitive Index had lost 37.5% in the twelve months that ended on Thursday, keeping it at the 21st place among 35 wellknown global indices considered for the study. Chile continues to head the list, but with a 11.6% loss. New Zealand, South Korea, Israel and Spain follow. The Dow Jones Industrial Average has lost 35.6% and the NASDAQ Composite has lost 30.4% over the same period. (These rankings do not take exchange rate effects into consideration).

(The author is an independent technicals analyst)

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