Sensex
Sensex is in green having shown a healthy rally of about 11%in the last few weeks. The nation’s index had found a strong support at its 200days Simple Moving Average (SMA).
Yesterday’s daily candle at a short-term high indicatesindecision. At the time of writing, the index has not been able to breakyesterday’s high, even though the market is higher than the price at which itopened.
According to an interpretation of Mean Reversion Theory ofStock Market, the index may be overbought (i.e. the probability of pricesfalling down is higher than the probability of the prices going up), and freshbuying may be not be advisable.
Cement stocks rally
Cement stocks seem to be the darlings of the market todaywith a few of them, namely, Ambuja Cements (AMBUJACEM), J K Cement (JKCEMENT)near their 52-week high. A similar trend is noticed in the Futures segment withcement stocks being four out of the top five % price gainers.
Smallcap stocks notparticipating in the rally
At the time of writing, index NIFTY 50 (similar to SENSEX)is showing 30 stocks advancing and 20 stocks declining, while the NIFTY MIDCAP 100is showing 59 stocks advancing and 41 declining, and the NIFTY SMALLCAP 100 isshowing 39 stocks advancing and 61 stocks declining.
Thus, the smallcap stocks do not seem to be participating inthe upmove.
Mid- and small-capstocks may be forming a top
On a daily chart, the mid- and small-cap stock indices haveformed something like a triple top. A triple top is one of the most powerfultopping formations. In addition a lower high has been formed. However, the 20and 50 periods SMA may provide support. Closing below them will give weightageto a top being formed.
The large-, mid- and small-cap stocks lag each other, so ifthe latter two begin to fall, then the large-cap will also have to follow suitsooner or later, and that means SENSEX and NIFTY 50 may be adversely affected.