Uptrend is over
 

Thursday's big crash ensured that the indices - particularly the mid and small caps - ended deep in the red. The Sensex finished 2.80% or 510.61 points lower, and the Nifty ended 2.85% down. The CNX Midcap Index lost 4.48%.

Reliance Infrastructure was the biggest winner among index stocks with a 5.4% gain. The other index stocks to rise included Reliance Industries, Hero Honda, TCS and ITC with gains between 3.1% and 0.4%.

Mahindra & Mahindra was the biggest loser among index stocks with an 8.6% loss. The other index stocks to fall included DLF, Tata Motors, Larsen & Toubro and Tata Power with losses falling between 8.6% and 7.0%.

Jubilant FoodWorks was the biggest winner among the more heavily traded non-index stocks with a 7.5% gain. The other non-index stocks to go up included Reliance Industrial Infrastructure, Cairn India, C Mahendra Exports, Titan Industries, Jai Corporation, HDIL and Reliance Capital with gains between 6.6% and 1.8%.

Aurobindo Pharma was the biggest loser among the more heavily traded non-index stocks with a 26.4% loss. The other non-index stocks to go down included Kalindee Rail Nirman Engineers, D B Realty, Spicejet, Jet Airways, Punj Lloyd, BGR Energy Systems and ARSS Infrastructure Projects with losses falling between 19.6% and 11.6%.

INTERMEDIATE TREND

The Sensex breached 18,050 and the Nifty 5,400 during Thursday's crash to fall into intermediate downtrends. The CNX Midcap Index was already in one. The uptrend that ended lasted just over a week, but the gains were substantial enough to earn the intermediate uptrend classification.

The Sensex would now have to climb past 18,700 and the Nifty over 5,600 to re-enter intermediate uptrends. The level to cross for the CNX Midcap Index remains 7,950 to do so. (Numbers rounded up to the nearest 25).

The Dow also fell into an intermediate downtrend on Wednesday, and now a majority of global markets are in one. Brazil and China are among the very few to remain in uptrends, and had been outperformers along with us for the two weeks that preceded Thursday's crash.

The new intermediate downtrend has started from the Sensex's February 18 high of 17,691, and is therefore already a week old.

LONG-TERM TREND

Our market's major trend remains down, which means that this is still a bear market. This is because the indices still have falling intermediate tops and bottoms, and are below their 200-day moving averages.

The bear market started with the market's November 5 top, and the Sensex had lost 18% in the three months at its lowest point since that top. However, the shortest bear markets of the last 25 years have ended in three months, and the mildest ones resulted in a 20-25% loss. So, there is a possibility that the bear market could have ended, but it will be a while before this can be confirmed.

Most global markets are in major uptrends. Brazil is one of the very few others which are not.

TRADING & INVESTING STRATEGIES

Investors who have a reasonably defensive portfolio may get away with a moderate fall, as a section of the market is flattening out rather than falling heavily.

Further investments should now be made only after this intermediate downtrend comes to an end.

GLOBAL PERSPECTIVE

Most markets are now in intermediate downtrends, with Brazil and Shanghai surviving with uptrends. The Dow would have to climb above its recent high of 12,418 to be back in an intermediate uptrend.

Most global markets are in bull phases, with our market and Brazil among the very few that are in major downtrends. The Dow would go into a major downtrend if it were to breach 10,900.

The Sensex gained 8.5% in the twelve months that ended on Thursday, down a position to the 22nd place among 35 well-known global indices considered for the study. Sri Lanka continues to head the list with a 100.5% gain. Argentina, Indonesia, Denmark and Russia follow. The Dow Jones Industrial Average has gained 16.9% and the NASDAQ Composite has gained 22.5% over the same period. (These rankings do not take exchange rate effects into consideration).

Deepak Mohoni
(The author is an independent technical analyst)