Sensex at a new high – which sectors should you pick for investing?

After 5 months of sideways consolidation within a ‘rectangle’ pattern, Sensex appears to have broken out to close at a new lifetime high. Since a previous break out in Dec ‘13 had turned out to be a ‘false’ one, it may take a few more days to convince the doubters of this break out.

From the BSE sectoral charts below, it will be clear that not all sectors are participating equally in the bull market. Some have been frontrunners; others are consolidating or breaking out of consolidations; and a couple are still in bear markets.

There are two ways to play the Sensex bull market break out: (1) stick to the sectors already in a bull run and use dips to add; (2) invest in the sectors that are breaking out of consolidations. Sectors in bear markets should be avoided.

BSE Auto Index

Despite declining auto sales of late, BSE Auto sector is in a bull market. It is consolidating after touching a new high. Daily technical indicators are looking overbought. Some more consolidation can be followed by new highs.

BSE Bankex

BSE Bankex is moving sideways and desperately trying to stay in bull territory. Technical indicators are looking overbought. Some more correction/consolidation is likely. Private sector banks are performing well. Public sector banks are burdened with NPAs and keeping the sector in limbo.

BSE Capital Goods Index

BSE Capital Goods index received good support from its 200 day EMA and has broken out to a new high. Technical indicators are looking overbought, which means a correction/consolidation is around the corner. Stock specific buying recommended.

BSE Consumer Durables Index

Technically, BSE Consumer Durables index is in a bear market, though the index is trading above its 200 day EMA. Technical indicators are looking overbought. A correction is likely. Wait for a convincing move past 6365 to enter.

BSE FMCG Index

After leading the Sensex till Jul ‘13, BSE FMCG index has been in a sideways consolidation. All three EMAs are converging, which is usually followed by a sharp move. Technical indicators are in bullish zones. The sharp move is likely to be upwards.

BSE Healthcare Index

BSE Healthcare index is in a runaway bull market. That means dips can be used to add. Most stocks are trading at high valuations. That doesn’t mean they can’t move even higher. Technical indicators have corrected from overbought conditions but remain in bullish zones.

BSE IT Index

BSE IT index is also in a runaway bull market. Note that all three EMAs had converged in Jun ‘13, followed by a ‘gap up’ upward break out in Jul ‘13. That ‘gap’ has remained unfilled, and is likely to act as support in future.

BSE Metal Index

BSE Metal index rallied back into bull territory from its Aug ‘13 low, but formed a ‘rounding top’ bearish pattern to slip below all three EMAs. The index needs to cross above its Feb ‘14 top of 9433 to break out of the current downtrend. Technical indicators are looking bullish.

BSE Oil & Gas Index

BSE Oil & Gas index has gone nowhere in the past year. It has formed a bullish ‘rounding bottom’ pattern to break out above all three EMAs, but technical indicators have become overbought. A correction is likely.

BSE Power Index

BSE Power index made a couple of forays into bull territory in Dec ‘13 and Jan ‘14. Bears used the opportunities to sell. The sector has too many regulations and is dominated by bankrupt PSUs. Strong reform measures are required to get the sector back on track.

BSE Realty Index

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BSE Realty index is in a long-term bear market with not much hope of revival. The only silver lining is that large and respected players like Tata, Mahindra, Godrej are entering the sector, which is dominated by a bunch of crooked entities. Avoid real estate stocks; buy real estate.