Up or Down?

Sensex 10223.09 +247.74

Nifty 3122    +48.45

One could analyze the technical trend of the market in many ways. One way would be to take the Nifty or Sensex chart and then chart a trend based on patterns. Second is to take the top ten Nifty stocks and analyzing their technical trends.

I looked at the second method, having discussed the first previously. I'll focus on three key stocks which have and would eventually contribute to Nify/Sensex trend. Here are my observations.

1. RIL which contributed to significant portion of the fall is now close to its 2-year low. If it breaks 1174 decisively, then it could be headed lower. I have always stressed on my law of markets – “The stocks contributing the most to the rise of index would contribute the most to the fall whenever it happens”. It is only a matter of time before the law unfolds. RIL doesn’t look good fundamentally and technically.
2. Next, let’s take the case of ICICI bank which is another big contributor to the fall. Well, there are different views on its fundamentals. One may argue that it is one of the strongest banks in terms of capital adequacy ratio, insignificant exposure to sub prime etc. Ah! For once, let’s look at it logically. With such high interest rates and inflation, retail loan portfolio is sure to witness a slowdown. One has already seen a huge dip in home loan portfolio. New home sales are hard to come by, so banks would face some pressure on demand for fresh loans. Automotive manufacturers have indicated a slowdown in sales, which means there would be a corresponding hit in auto-loans. Corporate loans would be hard to come by, given the current economic scenario. Hence, fundamentally ICICI bank is not one of the greatest picks right now. Technically, it has already broken its 2-year and is headed further down. A temporary bounce was expected and is already underway.
   
   
3. Infosys is a victim of the current economic uncertainty. It broke its 2-year support and looks to head further down.

Given this, I don’t see the fall to stop as early as this. It should take a while before we would begin to see some confidence. The other case is to look at how markets behave internationally. If you look at Dow, it has already broken its 5-year support. The Nifty on the contrary has only fallen a little below its 2-year low.