Friday, September 19, 2008

Rakesh Jhunjhunwala Positive On the Markets

Since a number of days now, I have been talking of a target of 3800 on the Nifty. This morning because of the global weakness the Nifty opened weak and touched that target of 3800. In fact, so close was the prediction that today’s low on the Nifty happened to be 3799.55. And once the target was achieved, the Nifty started moving up. The move up was steady and consistent and so good was the recovery that the Nifty finally managed to close near the highs of the day with a gain of 30 points. The high made today was 4050.10, which means an intraday recovery of 250.55 points. Such a good day changes the outlook totally. Crude, as of now, is trading flat near $96 while gold, after a stunning $70 rise yesterday is up again by $46 or 6%.

Nifty Daily Chart - Hammer Today and Long lower shadows suggest bullishness

Seen above is the daily chart of the Nifty. Three days out of the last four have displayed candles with long lower shadows, as marked by the green arrows. Two of these candles have very small bodies and, in comparison, very long lower shadows. Today’s candle, in candlestick charting parlance, is also called a hammer. And it is named a hammer not only because it looks like one but also because such candles are found near the end of a downtrend and it is said that such candles are ‘hammering out a base’. Options outlet says the following about a hammer.

Hammer According to Options Outlet

So, is this the end of the bear market? Well, we can’t say for sure. The prices have started ‘hammering out a base’, inflation has stabilized, crude prices have softened and India does not seem to be having too much of an impact of the credit crisis in the US. Who knows, this may be the end of the bear market. But hey, look at the world around you. There is so much of pessimism around. Surely, India cannot remain insulated from the problems in the rest of the world. Hmm, maybe it cannot. Or maybe it can. But as far as pessimism around the world is concerned, I would again like to point out what Sir John Templeton said. He said that “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.”

Rakesh Jhunjhunwala, according to Moneycontrol says that India is still in a long term bull market and that the current phase is only an interruption to that bull market. His logic is simple. That had we seen the market rise from 3000 to 13000 and then come down to 11000, it would have been termed as a correction. Now when we have seen so much of greed and so many excesses that the markets went to 22000 and then came down to 13000 then why are we not calling this phase a correction too? Shireen Bhan, in that context, in conversation with him mentioned that we have recently seen ‘the mother of all bull markets’ to which Rakesh Jhunjhunwala immediately disagreed and said the ‘the mother of all bull markets’ was yet to come. This conversation with Rakesh Jhunjhunwala will be telecast on CNBC this Saturday at 7:30 pm or Sunday at 10:30 pm. Watch it.

Shankar Sharma of First Global, though,
remains a bear and says that the Sensex may not be able to reconquer its previous highs for the next 2-3 years and that it may come down to 10000-11000 levels.

But Vikas, where does that leave us? Do we remain bullish or bearish? Well, I have given you both sides of the market. You decide for yourself what you want to be. I, personally, am not too bearish on the markets, especially after seeing the candles formed in the last four days.

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  1. Yes, I can see the Head and Shoulders formation. But my understanding is that a H&S top (like this one) typically appears in an uptrend to signal a reversal. So what is the significance of this H&S in what looks to be a downtrend. Also, the all important factor of "volume" is not too clear to me. Can you clarify?

  2. Radhika, a head and shoulders (H&S)pattern is a H&S pattern no matter where it appears and has the same implications - a reversal in the trend. And as far as the present trend is concerned, we were in an intermediate term uptrend (though in a long term downtrend) which has now been reversed.

    As far as the volumes are concerned - just remember that when prices go up, volumes go up and when prices come down, volumes come down. If it is not so means something is wrong. This means that falling prices with rising volumes is bearish and rising prices with falling volumes is also not very healthy. In a nutshell, that's what the volumes tell us.

  3. Vikas, Thank you for the clarification on the H&S and the trend. Are you saying that the H&S signalled reversal of the Primary downtrend or the intermediate uptrend. If I am correct the downtrend started Jan 2008. Where do you see the intermediate uptrend from. I am a beginner, so do appreciate your comments. Thanks, Radhika

  4. Well, Radhika, we generally say that a stock/index is in an uptrend when it is making higher highs and higher lows. As far as the current situation is concerned, if you look at the chart, you would notice that Nifty made a pivot high on 11th July 2008 at 4215.50, made a new low on 16th Jul and crossed the high of 11th Jul on 22nd July. So, an intermediate uptrend started on 16th July, but wasn't confirmed till 22nd July 2008 and this H&S signals reversal of this intermediate uptrend. Yes, you are right, the primary downtrend started in January 2008, but wasn't confirmed till 9th June. See this on the chart and you will understand. If you still don't, let me know and I will mail you in detail.

  5. Thank you Vikas. Your are not looking at only the closing prices, am I right? I would appreciate the details on email whenever you can.

  6. Yes, Radhika, you are right. I am looking at the highs and the lows too, and not only the closing prices.

    Send me a mail on and I'll get back to you with the details.