Not a Good Time To Start Buying

Deepak Mohoni 

THE stock market recovered last week, with the Sensitive Index finishing 2.29%, or 361.66 points, higher, and the Nifty ending 2.29% up. The CNX Midcap Index gained 3.11%. (Figures are relative to the closings of Friday, 5 February, and not the test session that was held a day later). Hero Honda was the biggest winner among index stocks with a 6.6% gain. The other index stocks to go up included Infosys, Jaiprakash Associates, Grasim and ACC with gains between 6.2% and 5.0%. 
    Tata Steel was the biggest loser among index stocks with a 3.0% loss. The other index stocks to go down included Tata Power, NTPC, DLF and Maruti Suzuki with losses falling between 1.6% and 0.3%. 
    HMT was the biggest winner among the more heavily traded non-index stocks with a 24.5% gain. The other nonindex stocks to go up included Lanco Infratech, Reliance Media World, HOEC, Thinksoft Global Services, Sesa Goa, Indiabulls Real Estate and Chambal Fertilisers with gains between 17.5% and 9.5%. Shree Ashtavinayak Cine Vision was the biggest loser among the more heavily traded non-index stocks with a 27.3% loss. The other non-index stocks to go down included Dr Reddy's Laboratories, Gujarat NRE Coke, Ashok Leyland, Himachal Futuristic, Zandu Pharmaceuticals, Welspun-Gujarat Stahl and Bharati Shipyard with losses falling between 5.5% and 2.6%. 
INTERMEDIATE TREND 
The market remains in the intermediate downtrend which started from January 6 when the Sensitive Index peaked at 17,790.33. The level above which the Sensitive Index would signal an intermediate uptrend is 16,553. The Nifty's equivalent is 4,951, and that for the CNX Midcap is 7,446. These figures will come down to the level where the current rally tops out, and the next decline begins. Global markets are also in intermediate downtrends, despite last week's persistent rally. 
LONG-TERM TREND 
The longer-term trend of the market could well be down, as the Sensitive Index closed below 16,000 and the Nifty under 4,800 just over a week back. However, the CNX Midcap has remained above its danger level of 6,800. 
    Last week's recovery brought the main indices back above those levels, making the long-term trend a little ambiguous for now. However, a 3% fall would take them below their 200-day moving averages, generating another bear market signal. The CNX Midcap remains a more comfortable 16% above its long-term average, though. 
    A few global indices may also be in bear markets, with the Shanghai and Hang Seng indices below their 200-day averages and previous intermediate bottoms. The Dow will enter one if it closes below 9,600. 
TRADING & INVESTING STRATEGIES 
A bear market remains a distinct possibility, even if one has not been fully confirmed, as several stocks have entered major downtrends and are below their 200-day moving averages. This is, therefore, not a good time to start buying stocks, even though the valuations would have become more attractive because of the sell-off. 
    It would also be a good idea to make portfolios more defensive by switching out of highly volatile sectors such as real estate, construction, airlines, financial services and even metals. Defensives would include some of the pharmaceuticals, automobiles (leading two-wheelers), large-cap technology, FMCG and the less volatile of the banking stocks. 
GLOBAL PERSPECTIVE 
Global indices are still in intermediate downtrends, and their major trends are being tested as well. A fall below 9,600 would signal a bear market for the Dow Jones Industrial Average. 
    The Sensitive Index had gained 70.6% in the twelve months that ended on Thursday, keeping it at the 8th place among 35 well-known global indices considered for the study. Sri Lanka heads the list with a 112.9% gain. Argentina, Turkey, Indonesia and Russia follow. The Dow Jones Industrial Average has gained 27.9% and the NASDAQ Composite has gained 41.2% over the same period. (These rankings do not take exchange rate effects into consideration). (The author is an independent technical analyst)