Testing time

Friday''s rally ended one the longest losing streaks for the stock market. However, the Sensex still lost 3.23% or 617.15 points over the week, and the Nifty ended 3.44% down. The CNX Midcap Index lost 2.87%.

Hero Honda was the biggest winner among index stocks with a 3.2% gain. The other index stocks to rise included Bhel and HDFC Bank with gains between 2.9% and 0.3%.

Bajaj Auto was the biggest loser among index stocks with a 10.5% loss. The other index stocks to fall included Reliance Communications, Reliance Infrastructure, Sterlite Industries and Bharti Airtel with losses falling between 10.0% and 7.4%.

Sintex Industries was the biggest winner among the more heavily traded non-index stocks with a 9.5% gain. The other non-index stocks to go up included HPCL, BPCL, IOC, Jet Airways, Orchid Chemicals, DCB and Exide Industries with gains between 7.8% and 0.5%.

Shriram Transport Finance was the biggest loser among the more heavily traded non-index stocks with a 16.0% loss. The other non-index stocks to go down included Lanco Infratech, HDIL, Atlanta, ACC, Ambuja Cements, Indiabulls Financial and Amrutanjan Health Care with losses falling between 13.0% and 9.8%.

The market''s intermediate trend remains down. The downtrend started on April 6 when the Sensex peaked at 19,811. The downtrend would end if the Sensex crosses 19,700, the Nifty 5,925 and the CNX Midcap 8,400 (figures rounded up to the nearest 25). These levels will be replaced by the top of the rally that started on Friday.

There is some chance that the intermediate downtrend may have bottomed out following the crash in global commodity markets. A large fall in commodity prices would be viewed favourably since inflation and the consequent rate hikes have been the biggest concerns for the markets lately.

The US and European indices and Japan are in intermediate uptrends, but most of the others are in downtrends, and also had a poor week.

Our long-term (major) trend is up, which means that we are still in a bull market. The bull market started on February 11 when the Sensex bottomed at 17,296. Our market had been outperforming most global markets since that bull market bottom, but that has changed with the persistent decline of the last two weeks.

The Sensex and Nifty rose above their last intermediate tops and 200-day moving averages to signal a bull market, and several stocks had also done the same. However, the Sensex and the Nifty are now back below their 200-day moving averages. The last intermediate bottom was at 17,775, and a fall below that would mean that the bull market could have aborted.

Existing portfolios should be held on to as we are in a relatively new bull market. Even the more volatile stocks are relatively safer for now, as the bull market has reduced the market risk.

Further investments can be made now as the intermediate downtrend has run for over two weeks. There is a possibility of the correction running longer, but the risk for longer-term investments is still reasonable.

The US, European and Japanese indices have remained in intermediate uptrends despite falling last week. Most of the other markets are in intermediate downtrends, though, with some of the indices falling to six-month lows. The Dow would fall into a downtrend if it goes below 12,093.

Most global markets are also in bull phases. Japan and Brazil are among the very few important markets that are in bear phases. The Dow would go into a major downtrend if it were to breach 12,000.

The Sensex gained 7.2% in the twelve months that ended on Thursday, down ten positions to the 28th place among 35 well-known global indices considered for the study.

Sri Lanka continues to head the list with a 73.4% gain. Argentina, Indonesia, South Korea and Chile follow. The Dow Jones Industrial Average has gained 19.6% and the NASDAQ Composite has gained 21.3% over the same period. (These rankings do not take exchange rate effects into consideration).

Deepak Mohoni