Wednesday, January 23, 2008

Speed Thrills, But Kills

Many of you, drivers, would know that speeding your vehicle does give you a thrill but it is dangerous as well. That is why it is said that, “Speed Thrills, But Kills”. The same is true for markets also. While we love the way the prices go up speedily, but we should also be aware that when they start coming down, they may fall with the same pace. This market crash has caused many small investors to lose a lot of their hard-earned money. But, as is true in the case of cars, that seatbelts save us from fatal injuries, the same can be applied to the markets too. To protect oneself from grave injuries in the stock market, one MUST have a stop loss in place. I, in all my years of experience, have seen that people are as careless with stop losses as with seatbelts. Maybe we should make stop losses a law too.

But this crash has been a blessing in disguise for long-term investors. While such short term crashes don’t affect their long-term wealth, but it also gives them an opportunity to buy stocks which can prove to be good investment picks. I have never written such a long newsletter till now but because there are so many stocks which have reached their supports and have bounced back from there, that is why I am including so many in my newsletter today. Please make sure that you place the stop losses mentioned in them because any further downfall may lead to a further much deeper crash.

The Nifty broke through its major support at 5500 and found support near its next major support at 4500. One can expect the Nifty to consolidate between these two black lines for the next few weeks. We should be happy if there is a slow growth of Nifty from these levels. A fast paced recovery is not very healthy for markets and such recoveries are again prone to sharp corrections.

Arvind Mills fell sharply from a recent high of 93 to 35. This weekly chart shows that it quickly bounced back from 35. One can consider buying at current levels with a stop loss of 35. A good investment pick.

DLF corrected by 43% in this correction but bounced back immediately and is currently trading near 910-920 levels. It is showing good support near 850 on its daily charts. Keep a stop loss of 840 on a closing basis.

A 42% correction in Educomp too brought it down to its support at 3700 on the daily charts. A good pick considering 3500 to be the stop loss.

A 59% correction for GMR Infrastructure from its all time high brought it down to 111 but the spurt from this panic created lows has again brought to its support on weekly charts at 172. Remain invested or add positions at current levels with stop loss of 160.

Maruti corrected 44% from its all time highs in less than 3 months. It has strong support near 785 and is currently at 826. With a stop loss of 780, it seems to be a good buy at current levels.

Nagarjuna Fertilisers is probably one of the few stocks which has eroded more than 70% of its value in a fortnight. With so much of erosion in prices, with a stop loss at 32, it is a very good buy at 40.

Neyveli Lignites is another 70% loser in a fortnight and this too seems to be a good buy at current levels with a stop loss of 90. The stop loss is probably a little wide but is required.

When a large cap like ONGC can witness a 40% correction in three months then obviously stocks having high speculative interest can be expected to show even sharper corrections. ONGC too seems to be a good buy at current levels with a stop of 830.

A 60 percentile fall in Peninsula Land made it test its support at 80. Now, placed near 100, it seems to be a good buy with a stop of 80. Some stocks in the construction and real estate sector are not looking very good, so it'll pay to be a little cautious with this one.

A 59% fall in Praj Industries in two months makes it an attractive buy at its current market price of 167 with a stop loss of 110.

With a stop loss of 580, at 615 Reliance Communication seems attractive for long term after a 42% fall in prices.

Reliance Petroleum is considered to be a goldmine for long term by fundamental analysts. While it was very speculative till about two months back, but after a 64% correction in less than three months, it seems like a must buy at current levels with a not-so-far stop loss at 140.

Another good stock to consider buying is Sail, which after its fast and furious rise in 2007 and after a 42% correction now, is looking attractive with a stop loss of 180 on closing basis on its daily charts.

Though, it is about Rs.250/- above its support level and stop loss of 570, yet Sterlite Industries, with wonderful fundamentals, is looking good after a healthy correction. Consider buying at current levels near 800.

Not many stocks in the pharma space are looking as good as Sun Pharmaceuticals, which has been in a consistent uptrend and, which, after this correction stands at its 3 and a half years long uptrending line. One can consider buying at the current market prices around 970 with a stop loss of 900.

Tata Tea has been range bound between 570 and 1000 for the last three years now and is now available at the lower end of its range with current market price of about 680. Consider buying with a stop loss of 550.

Voltas is another stock which has been of high speculative interest in the recent past but has corrected only 34% in the last two months but is now near its 8-month old support line. One can consider buying near the current levels with a stop loss of 180.

Many stocks in the software space are still looking weak. However, Wipro is at its 2 year support line. One may buy at current levels for long term gains but a stop loss of 400 should be STRICTLY respected. Has every possibility of confirming a bearish head and shoulders pattern.

Wockhardt is a stock which has been in a small range between 320 and 450 for a better portion of two years now but is also close to its 4 year long trendline, which is what is making it look attractive. One can consider buying with a stop of 320 and should be watched near 450. A downfall at those levels should be a treated as a signal to sell.

Happy investing!!!

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