Put Investing on Hold, Wait for a Larger Dip

DEEPAK MOHONI www.trendwatchindia.com      Strong rallies at the start of last week ensured that the Sensex finished 2.13% or 358.74 points higher, and the Nifty 2.27% up. The CNX Midcap Index outperformed the two main indices with a gain of 3.15%.  NTPC was the biggest winner among index stocks with an 8.7% gain. Other index stocks to rise included BHEL, Cipla, Larsen & Toubro and Sun Pharmaceutical with gains between 7.9% and 4.7%.  Bharti Airtel was the biggest loser among index stocks with a 3.4% loss. Other index stocks to fall included Coal India, Hero Motocorp, Hindalco and Tata Steel with losses falling between 2.8% and 0.6%.  Orissa Minerals Development Company was the biggest winner among the more heavily traded non-index stocks with a 32.2% gain. Other non-index stocks to go up included United Breweries Holdings, Jindal South West Holdings, United Spirits, OnMobile Global, Jet Airways, TTK Prestige and Shree Renuka Sugars with gains between 23.7% and 12.6%.  Kingfisher Airlines was the biggest loser among the more heavily traded non-index stocks with a 3.2% loss. Other non-index stocks to go down included Indiabulls Financial, McLeod Russel India, Bank of India, BPCL, Havells India, Jubilant FoodWorks and Sesa Goa with losses falling between 2.8% and 0.5%.  INTERMEDIATE TREND  The market is close to ending the intermediate downtrend that has been on since the Sensex topped out at 17,631 on July 10, about three weeks ago.  The market would enter a new intermediate uptrend if the Sensex were to cross 17,325, the Nifty 5,275, and the CNX Midcap Index 7,425. (Figures are rounded up to the nearest 25).  The global intermediate trend seems to be up again, with most of the US and European indices, besides Brazil and Hong Kong, among the markets now in established uptrends. Even we are now only a short distance away from entering one.  LONG-TERM TREND  Our market's long-term (major) trend has been more sideways than directional since making a significant bottom in mid-December, and a top in mid-February. That December bottom was at 15,136 for the Sensex, and the February top at 18,524. The market has been unable to move outside those points for six months now.  The sideways longer-term tendency will persist if this intermediate downtrend bottoms out above the previous intermediate lows at just below 15,750 for the Sensex and 4,770 for the Nifty. This appears to be the likely scenario as of now.  The long-term uptrend in global indices is under threat, as most have lower intermediate tops.  TRADING & INVESTING STRATEGIES  The market will probably be in a confirmed intermediate uptrend sometime this week, which makes it a good time to hold rather than add to existing portfolios. The best time to increase long-term exposure would be after the next intermediate downtrend runs for a week or more, or if there is a selloff this week.  Shorter-term traders would find trading on the long side more profitable, as most winning trades have been in this direction since last week.  "Investing" in gold and other commodities remains avoidable, as the longer-term trend in most commodities is down. Commodities, particularly oil, have recovered, but this is largely of relevance to short- to mediumterm traders.  GLOBAL PERSPECTIVE  The global intermediate trend is now up, since more indices are in uptrends than downtrends. The list of uptrends includes the US indices, most European indices, Hong Kong and Brazil. However, volatility in both directions had risen sharply at the end of last week in Europe, and this could lead to potential instability.  As mentioned, the Dow and Nasdaq are still in intermediate uptrends. The Dow would go into a downtrend if it were to fall below 12,500.  The global bull market is still not out of harm's way, with a majority of indices still closer to their year's lows rather than highs. The Shanghai index had fallen to a three-year low.  The Sensex lost 8.6% in the 12 months that ended on Thursday, which keeps it at the 29th place among 51 global indices considered for the study. Venezuela's IBVC index continues to head the list with a 175.5% gain. It is followed by the Karachi 100 index with an 18.4% gain and Mexico's IPC with a 16.5% gain. Greece (down 52.2%), Portugal (down 32.6%), and Spain (down 31.4%) are the worst performing global indices.  The Dow Jones Industrial Average has gained 6.3% and the Nasdaq Composite has gained 7.0% over the same period. (These rankings do not take exchange rate effects into consideration).  Catch Deepak Mohoni live on ET NOW at 10:30 am on week days