Falling Like Ninepins

THE MARKET'S brief but substantial winning run ended last week, with the Bombay Stock Exchange (BSE) Sensitive Index finishing 5.81%, or 578.87 points, lower and the National Stock Exchange (NSE) Nifty ending 5.47% down. The CNX Midcap index was the better performing index during the decline as well, with a smaller loss of 3.53%.
    Tata Power was the biggest winner among index stocks with a gain of 1.2%. The only other index stocks to go up were TCS and Bharti Airtel with gains of 0.9% and 0.02%, respectively.
    Jaiprakash Associates was the biggest loser among the index stocks with a 16.2% loss. The other index stocks to go down included DLF, Tata Motors, ACC and Mahindra & Mahindra (M&M) with losses falling between 14.2% and 11.2%.
    Tata Teleservices was the biggest winner among the more heavily traded non-index stocks with a 26.2% gain. The other non-index stocks to go up included National Aluminium Company (Nalco), Glenmark Pharmaceuticals, Jindal Steel & Power, Idea Cellular, Union Bank, Bombay Dyeing and IDBI Bank, with gains falling between 6.1% and 2.3%.
    Indiabulls Real Estate was the biggest loser among the more heavily traded non-index stocks with a 30.4% loss. The other nonindex stocks to go down included Alkali Metals, Suzlon Energy, Zee Entertainment, Steel Authority of India, IVRCL Infrastructures, Crompton Greaves and Lupin, with losses falling between 23.2% and 15.9%.
INTERMEDIATE TREND: The intermediate downtrend that began on September 8 continues. The level above which an intermediate uptrend will be triggered has moved down since last week to 10,571. The equivalent for the Nifty is 3,161, and that for the CNX Midcap index is 3,868.
    Quite a few stocks and a couple of indices have briefly entered uptrends during the rally, but most are back in downtrends now. Most global markets are also in intermediate downtrends.
LONG-TERM TREND: The market's long-term (major) trend remains down. The Sensitive Index was down 63.7% at its October 27 low, making this the worst bear market since the index was launched. It will be best to take the level to be crossed for a major uptrend (i.e. a bull market) as the last but one intermediate top of 15,580, made on August 12. This is because the more recent intermediate top of 15,107 (September 8) is just 3% below that level. The Nifty's equivalent is 4,650, and that for the CNX Midcap is 6,016.
    It is unlikely that the next intermediate uptrend will be able to reach that far up, and the level at which it tops out will become the new trigger.
TRADING & INVESTING STRATEGIES: A buy-ondeclines strategy should continue to work reasonably well for longer-term portfolios. Purchases should be made in increments, as this will reduce the downside risk considerably. The portfolio-building exercise has not been suggested in anticipation of an early end to the bear market, but simply because the downside risk is substantially lower when the indices are well below their bull market tops.
    Banks, FMCG, some of the pharmaceuticals, and petroleum majors continue to look the safest. Technology stocks are also stable now. Real estate, steel and metals, finance and broking stocks should be avoided until the existence of a bull market is confirmed.
GLOBAL PERSPECTIVE:
Most global markets are back in intermediate downtrends now, with the Dow and most of Europe falling into one last week. Some markets — including ours — did not enter intermediate uptrends at all, despite rallying quite strongly. The Dow will enter an intermediate uptrend should it
cross 9,213. The recently established downtrend will have to be ignored if this happens in the next day or two. If an intermediate downtrend is established for the Dow, the bull market trigger level will come down from 12,000 to 10,000.
    The BSE Sensitive Index had lost 52.2% in the 12 months that ended on Thursday, down two positions to the 27th place among 35 well-known global indices considered for the study.
    Slovakia continues to head the list, but with an 18.1% loss. Spain, Chile, Belgium and Karachi follow. The Dow Jones Industrial Average has lost 33.2% and the Nasdaq Composite lost 39.6% over the same period. (These rankings do not take exchange rate effects into consideration). (The author is an independent technical analyst)