Sunday, January 27, 2008

What a Week!!!!!


The week gone by has seen a roller coaster ride with the markets playing a yo-yo. The market saw wild downward swings on Monday and Tuesday when there was total mayhem in the markets and the days thereafter saw upward corrections before the Nifty eventually closed the week at 5383.

It is in situations such as these that discipline of the market participant is tested. One must decide well before taking a position in the market whether he is an Investor or a Trader. Let us try to clearly understand the difference between the two terms. A Trader is one, who is taking a short term view, could be in the nature of hours, of the market. An Investor, on the other hand, buys a stock on a longer time horizon, which may extend into many months or years.

In situations, such as we witnessed in the past week, an Investor must stay out of the market not doing anything, or, if he must, and has the cash, then he can buy afresh when the market hits such lows. Maybe he can even go on a holiday so that he is not tempted to take wrong decisions. A Trader, however, must cut his losses the moment a trade goes against him. The importance of having ‘stop losses’ in place for traders needs no emphasis.

It must be noted that in the past week nothing has changed fundamentally in the Indian market. The events of the past week were more a result of the global situation, particularly the difficulties in US, liquidity difficulties due to the massive response to Reliance Power IPO and margin requirements due to a fall in the market.

We must remember that we continue to be in a long term, maybe a multi year, Bull Run and we must not lose heart at such nerve wrecking volatility. Volatility will be a part of the market and all investors must learn to deal with it. I am sure with discipline all investors will continue to take advantage of the opportunities provided by the market. A large number of blue chip companies have corrected 20 to 30 % from their peak levels and are good buys at the current levels. When the markets start moving up again it will be these blue chips which will be the first to move up. I fully agree with Vikas who, in one of his earlier newsletters, had mentioned that when one thinks that everything has finished, that is actually just the beginning.

Col. (Retd.) Mahesh Sharma

The Nifty, as seen in this 30-minutes chart, has gone above its resistance line near 5300 and also crossed above its earlier high of 5350. This means that a short-term uptrend has been confirmed since it has started making a pattern of higher highs and higher lows. The intermediate trend is still down and the Nifty will have to do much more to come back into an intermediate uptrend. As seen on this chart, the Nifty should find support between 5200 and 5250 and resistance near its next resistance line near 5600.

Adlabs Films is, technically, looking good in the short term. As seen in this 30-minutes chart, it has broken out of a bullish triangular formation. The target for this breakout could well be 1700 but on a more conservative note, it could go up to 1450. The Relative Strength Index (RSI) of Adlabs finding support near 40 on Thursday and crossing above 60 on Friday confirms the strength in the stock. One may consider buying Adlabs near the current levels (1220) with a stop loss of 1080 and a target of 1450. Traders with higher risk taking capacity may partially book profits near 1450 and keep the rest for a target of 1700.

Ballarpur Industries (BILT) has broken above its downtrending line near 155 with the RSI also near 70. The only thing that advises caution is that the volumes have not shot up with the breakout. A sudden spurt in volumes with the breakout would have meant further confirmation of the strength. But, with a stop loss at 140, it looks good for a target of around 185.

Gateway Distriparks went through its resistance line on the 30 minutes chart with a high range candle and a sudden spurt in volumes. The RSI also suddenly went above 60. All three are giving an indication that this breakout may not be a false breakout. This breakout could take the price upto the next resistance at 145. Keep a stop of 105, should the trade go against you.

Infosys Technologies has broken through the bullish triangular pattern that it had formed in the last week on its 30 minutes chart. It seems to be a good buy at current levels with a stop loss at 1450 and it looks good for a target of 1700.

Shipping Corporation, like most of the other stocks mentioned today, has broken out of a bullish triangle and with a stop loss of 215; it is looking good for a target around 300. Risk-averse investors may consider booking profits near 280.

Tata Consultancy Services, like its competitor, Infosys, is looking bullish on the charts. It has broken through a month old trendline with a couple of good looking high range candles and with a sudden increase in volumes. This signifies that the current breakout may be genuine. It can be bought at current levels for a target of around 1020 with a stop below 850. A better and safer stop, in my opinion, would be around 820.

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