Wednesday, May 21, 2008

Bulls At An Advantage

This article on moneycontrol gives the view of their Technical Analysis expert, Ashwani Gujral, who recommended Tata Steel with a target of 950 and Sterlite Industries with a target of 1070. These stocks were already recommended on this page with a target of 1050 and 1040 in the newsletters for 15th May 2008 and 30th April 2008 respectively.

The Nifty today opened with because of weak global cues but kept rising through the day to close the day slightly in the green. The Asian markets ended on a mixed note today with the Hang Seng closing green while Nikkei was in the red. European markets are now (at the time of writing the newsletter) more or less flat while the Dow is still losing 70 points after a loss of about 200 points yesterday.

Looking at the chart of the Nifty today, I find no difference in the chart since yesterday except that the support near today’s low at 5050 becomes a little stronger. So, I might as well copy and paste what I wrote here yesterday. In fact I’ll do better than that, I’ll just add a link to yesterday’s newsletter and you can click here to read what I wrote about the Nifty yesterday. We still have resistance near trendline 3 and trendline 2 and support near 5050 and then trendline 1. RSI has yet to cross 60 to give us bullish signs.

It is all becoming a little confusing now. We made a low of 1292.20 in the now infamous decline of May 2004 (when the BJP government fell) and a high on 8th Jan this year at 6357.10. The decline in mid Jan and then through February and March made is correct 38.2% of the move from May 2004 to Jan 2008. I think a 38.2% retracement in a secular bull market (what most market participants have been claiming to be in since the last 4-5 years and which is expected to last another 8-10 years) is quite enough. A decline deeper than this should not come about. We should probably just do some base building here (which, I personally think, is in progress now) and move on. But the signals from the western world and the investment gurus are not very positive. According to
Eric Roseman, George Soros, the hedge fund manager of the Quantum Fund and one of the best investors, has gone on to say that investors are now participating in a bear market rally. Warren Buffett, nicknamed ‘The Sage of Omaha’, in this article, says that the end to the credit crunch is still not in sight and that the stocks could be heading still lower. I tend to agree with Haresh Soneji, CNBC TV 18’s Research Analyst, who says in this article, that investors the world over may be hoping that both Soros and Buffett are terribly wrong this time around but given their history, it seems unlikely. They may turn out to be right but one of the advantages of blogging is that I could disagree with them if I want to and I am disagreeing. I feel that we have already seen an intermediate term low and that we should not be going below that for a long time to come.

Hmm…., disagreeing with George Soros and Warren Buffett, what am I doing? In fact, it is a win win situation for me. If I go wrong, I’ll be expected to, because where do I stand as compared to Soros and Buffett, but the technical signals now do not show that the markets have anymore downside and I have
Ashwani Gujral agreeing with me. And if I do turn out to be right, I can always turn around and say that I could foresee what George Soros and Warren Buffett could not. This is why I love blogging. I can never lose. I would appreciate your comments too on how you expect the markets to behave now because as I said, it is becoming a little confusing now and I would like to know what all of you are thinking.

Alstom Projects, with its Relative Strength Index (RSI) crossing 60 during its last peak and now finding support near 40 before turning back, seems to have given a good sign of turning around from the current levels. The stock may go up to its trendline near 720 from the current levels (which itself is a return of about 12-14%) and if it is able to cross the trendline then could continue to go up to a target of 950-1000. Buy now with a stop loss of 580 for a target of 720 and then between 950 and 1000.

Siemens seems to be getting support near 550 and 560 since a month now and with the downward sloping trendline coming so close, it is left with no option but to break out of the pattern. It now has to go above the trendline or may choose to come below the support. This is a perfect opportunity to buy it. If it goes up, it is in our favour and in case it comes down below the support, the stop loss is so close that we’ll hardly lose anything. Consider buying above 600 with a stop loss of 560 for a target of about 770.


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