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Friday, April 11, 2008

Long-term investors can start portfolio building

The market fell sharply last week, with the Sensex finishing 6.28% or 1,028 points lower, and the Nifty losing 5.97%. The CNX Midcap lost 3.83%. The market bucked the global trend by not participating in the worldwide rally. Ranbaxy Laboratories, up 4.4%, was the biggest winner among Sensex stocks. Satyam Computers gained 4.1% to become the only other Sensex winner. Bharat Heavy Electricals (Bhel), down 21.9%, was the biggest loser among Sensex stocks. Larsen & Toubro, HDFC, DLF, Reliance Energy and Mahindra & Mahindra followed with losses between 12% and 15%.

Akruti City, with a gain of 27.3%, was the biggest winner among the more heavily traded non-Sensex stocks. The other gainers were Orchid Chemicals, Amtek Auto, Mangalore Refinery and Petrochemicals, Hindustan Oil Exploration (HOEC), Hero Honda, United Spirits and V-Guard with gains between 5% and 25%. Orbit Corporation, down 23%, was the biggest loser among the more heavily traded stocks. Other losers included Yes Bank, SAIL, Reliance Capital, GSS America, Jindal Steel, Sesa Goa and Nagarjuna Construction with losses between 12% and 21%.

Intermediate trend

An intermediate downtrend was triggered for the Sensex and the Nifty by Monday's crash, only a day after an uptrend had been confirmed. The preceding intermediate uptrend had started from the Sensex's March 18 low of 14677, and lasted till March 28, with the Sensex topped out at 16452. The CNX Midcap was already in a downtrend then, but briefly crossed its uptrend trigger of 6361 on Wednesday. Its intermediate trend is best treated as ambiguous.

The newly-established downtrend will end if the Sensex climbs past 16452 and the Nifty passes 4971. The downtrend signal would be regarded as a false one should the indices manage to rally past these levels straight away. This is a possibility, as a promising global rally has been in progress. Most global markets are getting into intermediate uptrends, having climbed to one-month highs as a result of the recent rallies. We have, however, not participated in the latest global rally so far.

Long-term trend

All the main indices are in major (longterm) downtrends. However, the Nifty has made a marginally higher intermediate bottom on March 18 at 4469, compared to its January 22 low of 4448. The Sensex and the CNX Midcap indices have lower bottoms, though.

The Sensex has to close above its last intermediate top of 16453 to be back in a bull market, unless the last downtrend signal proves to be a false one. The corresponding level for the Nifty is 4971 and 7814 for the CNX Midcap index.

The bear market started with the Sensex's January 10 high of 21207. It was just over two months old when it made the recently established intermediate bottom at 14677 on March 18. A fall below that level will mean a continuing bear market.
 
Trading & investing strategies

Longer-term investors can start the process of slowly building up their portfolios. Pharmaceuticals and FMCG stocks have been the better performers since January 22, and are safer options at this time.

Global perspective

Global markets enjoyed a reasonably bullish week, unlike the Indian market. Most global markets are getting into intermediate uptrends, having climbed to one-month highs as a result of the recent moves.

The Dow has been in a range between 11500 and 12850 for almost three months. The rally past 12850 can, therefore, turn out to be a significant one, not just for the Dow but for most global markets.

A fall below 11500 will mean a continuing bear market. The long-term (major) trends of all the important global indices remains 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 '08 (until Thursday) stands at 23.8%, taking it one place up over last week to become the fourth best performer among 40 well-known global indices considered for the study. Egypt tops the list with a 51.8% gain. Brazil and Karachi are the other two markets ahead of us with gains of 37.9% and 34.4%. (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 3.9% over the same interval.
 
Source: ET
 

 


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