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Friday, August 26, 2011

Which stocks are dragging the Sensex down?

The Sensex closed well below its May ‘10 low today, and the talking heads in the business channels had grim looks on their faces and kept saying “It’s a very bad day”, and “It’s a terrible start to the Sep series”! They should have said: “What a great day for the bears”, or, “What an opportunity for those who sold at higher prices”. Guess they are pre-programmed to feel sad when the market falls.

I took a quick look at the weekly charts of the Sensex constituents (except Coal India, which is a recent listing and doesn’t have adequate trading data).

Only seven stocks are trading above their rising 50 week EMAs (equivalent to the 200 day EMA on daily charts) indicating bull markets. These seven have prevented the Sensex from falling much lower. Here are the ‘Magnificient Seven’ (you can check out a terrific Western of the same name featuring Yul Brynner, Steve McQueen, Charles Bronson, over the weekend; the movie is based on a Kurosawa classic: ‘Seven Samurai’).

Stocks trading above rising 50 week EMAs

  1. Bajaj Auto
  2. Bharti Airtel
  3. Hero Motocorp
  4. Hind. Unilever
  5. ITC
  6. Mahindra and Mahindra
  7. Sun Pharma

The balance twenty-two stocks are trading below their 50 week EMAs indicating bear markets. These are the stocks that are dragging the Sensex down.

Stocks trading below 50 week EMAs

  1. BHEL – at level of Apr ‘09
  2. Cipla – at level of Oct ‘09
  3. DLF – at level of Mar ‘09
  4. HDFC – still above Feb ‘11 low
  5. HDFC Bank – still above Feb ‘11 low
  6. Hindalco – near Jun ‘10 low
  7. ICICI Bank – at level of May ‘10
  8. Infosys – at level of Oct ‘09
  9. Jaiprakash – at level of Mar ‘09
  10. Jindal St. and Power – at level of Jul ‘09
  11. L and T – still above Feb ‘11 low
  12. Maruti – at level of Jul ‘09
  13. NTPC – at level of Dec ‘08
  14. ONGC – still above Feb ‘11 low
  15. Reliance – at level of Mar ‘09
  16. SBI – at level of Feb ‘10
  17. Sterlite – at level of May ‘09
  18. TCS – at level of Sep ‘10
  19. Tata Motors – at level of May ‘10
  20. Tata Power – at level of May ‘09
  21. Tata Steel – at level of Aug ‘09
  22. Wipro – at level of Aug ‘09

What conclusions can be drawn from the above two lists? The seven that are still in bull markets will probably be the next target for the bears. The ones that have fallen the most, can give bigger percentage rises when the market turns eventually. Provided of course, that their fundamentals haven’t worsened. It does not mean that they can’t fall even further from current levels.

Small investors who do not own large-cap stocks can use the lists to short-list the fundamentally stronger ones and start accumulating slowly. But have a two-three years time-frame in mind. Please do not expect to get rich quick.

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