The Weekly Review

August 27, 2012

The Weekly Review is identical to the column that used to appear in the "Investors Guide" section of the Economic Times until August 6, 2012. ET has now discontinued with the Investors Guide section.

Same strategy: Add to portfolios only after next downtrend

The market made relatively small moves in both directions last week, as the sensex finished 0.52% or 92.13 points higher, and the nifty 0.38% up. The CNX Midcap Index continued to lag behind the two main indices with a loss of 0.94%.

Coal India was the biggest winner among the index stocks with a 4.7% gain. The other index stocks to go up included Infosys, TCS, Cipla and Hindustan Unilever with gains between 4.0% and 3.3%.

Bharti Airtel was the biggest loser among the index stocks with a 5.4% loss. The other index stocks to go down included Reliance Industries, Hindalco, Larsen & Toubro and Tata Steel with losses falling between 4.1% and 1.8%.

MTNL was the biggest winner among the more heavily traded non-index stocks with a 22.2% gain. The other non-index stocks to go up included Onelife Capital Advisors, Orchid Chemicals, Ranbaxy Laboratories, Orissa Minerals, Strides Arcolab, Apollo Tyres and BPCL with gains between 19.0% and 4.0%.

IFCI was the biggest loser among the more heavily traded non-index stocks with a 16.7% loss. The other non-index stocks to go down included Opto Circuits, OnMobile Global, Power Finance, HDIL, Bajaj Finserv, Canara Bank and TTK Prestige with losses falling between 13.7% and 6.8%.


INTERMEDIATE TREND

The indices remain in an intermediate uptrend, staying above their downtrend trigger levels even after the decline in the second half of last week. The intermediate uptrend started on July 26 when the sensex bottomed out at 16,598, and is therefore a month old now.

The levels below which the uptrend would end are still 17,450 for the sensex, 5,275 for the nifty, and a 7,200 for the CNX Midcap. (Figures rounded down to nearest 25). The CNX Midcap Index is closest to breaching its downtrend trigger.

The global intermediate trend could be turning down, with the Dow breaching 13,090 to enter a downtrend on Thursday. It however bounced back quite strongly the very next day, and is therefore not in a clear downtrend yet. The Footsie and the Hang Seng were already in downtrends, while Shanghai did not get into an uptrend with the others.


LONG-TERM TREND

Our market's long-term (major) trend has been practically sideways, with the sensex staying above its mid-December low of 15,136 and below its mid-February high of 18,524 for six months now. Longer-term volatility is therefore on the lower side at the moment.

Quite a few global indices also peaked around the same time as we did in mid-February, and have not caught up with that high yet. The Dow peaked a little later in April. The Dow and the German DAX are the strongest candidates to make fresh 2012 highs the soonest. The Dow has once again turned down after reaching 13,000, as it has done several times since March.


TRADING & INVESTING STRATEGIES

The market is still to enter an intermediate downtrend, and it is therefore best to hold on to existing portfolios rather than extending them. The best time to increase long-term exposure next would be after an intermediate downtrend develops, and runs for a week or more.

Shorter-term traders would continue to find trading on the long side more profitable, as the intermediate trend is up.

“Investing” in gold and other commodities remains avoidable, as the longer-term trend in most commodities is down.

 

GLOBAL PERSPECTIVE

The global intermediate trend may be turning down, with an increase in the number of indices in downtrends last week. However, volatility has reduced substantially in most markets, and the trends are not strong in either direction.

The global bull market is not entirely out of harm's way, with a majority of indices still failing to make new highs in the last 5-6 months. The Shanghai index had fallen to a 3-year low.

The sensex had gained 9.2% in the twelve months that ended on Friday, taking it up three places to the 26th place among 51 well-known global indices considered for the study.

Venezuela's IBVC index continues to head the list with a 196.8% gain. It is followed by the Denmark OMX index which has a 43.0% gain and the Karachi 100 index with a 37.5% gain. Greece (down 27.9%), Sri Lanka (down 26.4%), and Portugal (down 20.4%) remain the worst performing global indices.

The Dow Jones Industrial Average has gained 16.2% and the NASDAQ Composite gained 24.4% over the same period. (These rankings do not take exchange rate effects into consideration).


The work of art which appears at the top of this page is "Porträt des Antonio Riccobono" by Giovanni Battista Tiepolo. It is a Public domain image, made available by Wikimedia Commons. Links : Page URL and File URL.