Market range gets narrower!

The market rallied last week, with the Sensex finishing 3.03% or 465 points higher, and the Nifty gaining 2.81%. The CNX Midcap outperformed the main indices with a 4.49% gain.

The market participated in the global rally, unlike the preceding week. Bharat Heavy Electricals (Bhel) was the biggest winner among the Sensex stocks with a 12% gain. It was followed by Reliance Energy, Reliance, Tata Steel, HDFC, Hindalco and TCS with gains between 4% and 10%.

Infosys was the biggest loser among the Sensex stocks with a 4.1% loss. Maruti Suzuki, Jaiprakash Associates, Ranbaxy Laboratories, Hindustan Unilever, ACC and Wipro were next, with losses lying between 2% and 4%. Orchid Chemicals was the biggest winner among the more heavily-traded non-Sensex stocks with a 37.9% gain. Rajesh Exports, Indiabulls Securities, Tech Mahindra, Hindustan Oil Exploration Company (HOEC), S Kumars Nationwide and Sesa Goa followed, with gains falling between 13% and 18%.

GSS America Infotech, with a 24% loss, was the biggest loser among the more heavily traded non-Sensex stocks. Other significant losers were Tulsi Extrusion, Tata Communications, Akruti City, Indiabulls Real Estate, HCL Technologies and JSW Steel, with losses between 4% and 13%.

INTERMEDIATE TREND

An intermediate downtrend was triggered for the Sensex and Nifty on March 31, but the indices stopped falling a couple of days later and have flattened out now. As things stand, the market will be back in an intermediate uptrend, should the Sensex climb past 16237 and the Nifty above 4917.

The low of the downtrend has so far been 15298, which the Sensex reached on April 1, just two sessions after making an intermediate top. It may, therefore, be necessary to ignore this downtrend altogether, should the Sensex fail to make a fresh downtrend low before an intermediate uptrend is triggered.
A fall below the April 1 lows will re-establish the downtrend. The CNX Midcap is in an intermediate uptrend, which will end if it were to fall below 6065. This index is showing some signs of trending upwards, as it closed at a four-week high on Friday.

LONG-TERM TREND

All the main indices are in major (long-term ) downtrends. The Sensex will need to close either above 16453 or 18895 to be back in a bull market, depending on whether its current intermediate trend turns out to be a downtrend, or a continuing intermediate uptrend.
The CNX Midcap index will be in a long-term uptrend if it closes above 7378. The bear market started with the Sensex’s January 10 high of 21207. It was just over two-month old when the current bear market low of 14677 was established on March 18. A fall below that level will mean a continuing bear market.

TRADING & INVESTING STRATEGIES

Long-term investors can start the process of slowly building up their portfolios. Pharmaceuticals and FMCG stocks have been among the more stable performers since January 22, and are safer options at this time. Some of the technology mid-caps are also showing some signs of medium to long-term strength. There is no clear intermediate trend for the market, and this will make swing trading less profitable, as the moves are simply not large enough. Last week’s range was the narrowest for the Sensex in several months, and the next move can be a fairly large one, as and when it develops.

GLOBAL PERSPECTIVE

Global markets are also tending to get stuck in a range, just after getting into intermediate uptrends. The Dow has been oscillating between 11500 and 12850 for almost four months now. A rally past 12850 can, therefore, turn out to be a significant one, not just for the Dow, but for most global markets as well. A fall below 11500 will mean a continuing bear market.

The long-term (major) trends of all the important global indices remain down. The Dow will have to climb back above 14000 for its major trend to turn up again — i.e. to get into another bull market. The Sensex’s gain for ’07 (until Thursday) stands at 19.1%, and the index retains its position as the fourth-best performer among 40 well-known global indices considered for the study. Egypt tops the list with a 50.7% gain. Brazil and Karachi are the other two markets ahead of us with gains of 35.3% and 28.7%, respectively. (These rankings do not take exchange rate effects into consideration).

The Dow Jones Industrial Average has gained 0.8%, while the Nasdaq Composite has lost 4.4% over the same interval.