Downtrend Triggered

HE Dubai World effect sent the market hurtling down at the end of what had been a steady week until Wednesday. The Sensitive Index finished 2.29% or 389.84 points lower, and the Nifty ended 2.19% down. The CNX Midcap Index lost 1.75%. Hero Honda was the biggest winner among index stocks with a 5.7% gain. The other index stocks to go up included ACC, Hindustan Unilever, Grasim and Sun Pharmaceutical with gains between 3.3% and 1.5%. Jaiprakash Associates was the biggest loser among index stocks with a 7.9% loss. The other index stocks to go down included DLF, Reliance Infrastructure, ICICI Bank and Infosys with losses falling between 6.4% and 4.1%.      Thinksoft Global Services was the biggest winner among the more heavily traded non-index stocks with a 14.0% gain. The other non-index stocks to go up included Hindustan Zinc, BPCL, GMDC, Jet Airways, GAIL India, Orchid Chemicals and Bajaj Auto with gains falling 12.7% and 5.1%.      Satyam Computers was the biggest loser among the more heavily traded non-index stocks with a 13.4% loss. The other non-index stocks to go down included Mercator Lines, Indiabulls Real Estate, India Infoline, IRB Infrastructure Developers, Aban Offshore, Jaiprakash Hydro and Orbit Corporation with losses falling between 10.6% and 9.3%.  INTERMEDIATE TREND: The three indices breached their intermediate downtrend trigger levels on Friday, suggesting that the intermediate uptrend, which started on November 3, has ended somewhat abruptly. The trigger levels, which were breached were 16,600 for the Sensitive Index, 4,900 for the Nifty, and 6,350 for the CNX Midcap Index. The indices did recover from their lows as the day progressed and even closed above these levels, so there is a small chance that the downtrend signal was a knee-jerk reaction to the Dubai crisis. However, the Sensitive Index will have to climb back above last week's high of 17,300 to make that happen. Most global indices are also in intermediate downtrends, which increases the odds in favour of a global downtrend, and one here as well.  LONG-TERM TREND: The market's long-term (major) trend is still being treated as up. However, it is under threat as the intermediate uptrend failed to make a new bull market high. A close below 15,300 would signal a bear market. The Nifty's equivalent is 4,500, and that for the CNX Midcap Index is 6,300 (figures rounded down to the nearest 100). These figures correspond to the November 3 lows, where the uptrend had started. Nearly 10% of the more heavily traded stocks are in major downtrends, and the index had done a retracement of 77% during the last intermediate downtrend. These factors suggest that the bull market is in some danger now. The majority of global indices are still in major (long-term) uptrends.  TRADING & INVESTING STRATEGIES: It would be safer to not increase exposure to equity as the bull market is threatened. However, there is still no reason to reduce exposure, as a bear market has not been confirmed. Consider switching out from stocks, which fall to 4-5-month lows or worse.  GLOBAL PERSPECTIVE: Most global indices are also in intermediate downtrends, and a global downtrend can be said to be on. The possibility of a false signal exists here, too, but a few markets - including Shanghai, Tokyo and a couple of European indices, had entered downtrends even before the Dubai situation. Tokyo's Nikkei has gone below its last intermediate bottom and may be in a bear phase already. A fall below 9,000 could mean a bear phase for the Dow.      The Sensitive Index gained 86.7% in the twelve months that ended on Thursday, up one position to 4th place among 35 well-known global indices considered for the study. Argentina continues to head the list with a 121.9% gain. Indonesia, Russia, the Sensitive Index and Brazil follow. The Dow Jones Industrial Average has gained 19.9% and the NASDAQ Composite has gained 42.0% over the same period. (These rankings do not take exchange rate effectsinto consideration) (The author is an independent technical analyst)