Rally ahead, it's a good time to take long positions

Recent market conditions have certainly tested the patience of many investors. The most frustrating part is that the market has been drifting steadily lower, but intra-day moves have been choppy and sudden, making it hard to chase trades if you did not already have a position. We are not seeing smooth moves followed by small pullbacks that offer multiple chances, but rather quick whooshes followed by complete reversals on a dime. This will not last forever.

At these levels, the market is facing an acid test - the toughest since the start of the bull-run. The Nifty levels of 3890-3870 will prove to be a very important and major support level for the market. In past three trading sessions, the Nifty breached the major support of 3890-3870, but never gave closing below the 3890-mark. To avoid any major correction, the Nifty needs to cross 4090 and should sustain above this in coming trading sessions.

One of the important technical indicators, stochastic, has just crossed the oversold zone from below. This indicates that even though the market is at a 12-month low, it may pay to stay positive in a negative market.

We should see some rally from 3890-3870 Nifty levels, maybe in the form of sideways movements. In the next few weeks, a fresh bull-run will emerge once the market manages to sustain above these levels, and this bullish streak will be technically stronger and will take the market to newer heights.

At this juncture, we do not hesitate to mention that even if the market experiences some weakness or correction around the above mentioned levels, it is technically poised to enter the unprecedented bull phase very shortly. By the fall of 2009, we may see the Sensex trading at 25500 levels and the Nifty at 7000 plus levels.

On Nifty daily chart, last candlestick also points to a bullish 'Harami' pattern, giving a sign of a reversal of the downward trend. It signals that it is a good time to enter into a long position. The smaller the second (white) candle stick, the more likely the reversal. The only concern is crude oil that is breaching its all-time high by the day and can cause global downward re-rating of markets.

Sector Watch


The realty sector, which has corrected by more then 65% in the recent market fall, looks cheaper. But a cautious approach should be adopted on the back of poor macro picture created by higher interest rates and higher inflationary pressure which does not seem to come down in a couple of quarters.

Sectors like capital goods and banking have bottomed out and a sharp uptrend may be seen in these sectors. High volatility can be seen in the current month. The best picks in these sectors seem to be BHEL, L&T, Crompton Greaves, Siemens among capital goods, and SBI, BoI, YES Bank in the banking space. The government's proposal to add 10% ethanol (a byproduct of sugarcane) in petrol should be a positive move for the sugar industry. Stocks like Balrampur Chini, Shree Renuka Sugar, Triveni Engineering are likely to outperform the market.

Fertiliser shares that were in the limelight last month because of new policy measures, could once again outperform. The best picks in this sector are Chambal Fertiliser, Nagarjuna Fertiliser.

The author is the COO and head of research, justtrade.in