Wednesday, October 31, 2012

Water, Fire and Darkness - Thanks to Sandy

So, the Nifty was indeed waiting for the RBI credit policy to act as a trigger to break the range. It finally went below the lower end of the range at 5630 and closed well below it at 5597, almost 68 points in the red. Well, some people would argue that it could be because of Hurricane Sandy too. I don't deny the fact that Sandy might have had an effect but had that been the case, the market wouldn't have traded in the positive before the credit policy was made public. The mayhem started at 11.

Monday, October 29, 2012

Maybe The Credit Policy Will be The Trigger

Another narrow range day for the Nifty today. Opened with a slight gap up, continued its way down most of the day but showed a smart recovery of about 20 points in the last hour of trading and closed slightly in the green - just 1 point up. As of now it is continuing to trade in the range of 5630 to 5725. The cabinet reshuffle had virtually no effect on the Nifty. Maybe RBI credit policy will act as a trigger for the breakout from the range. Let's see whether it does happen tomorrow or not. The market is expecting the rates to remain unchanged or at the most a 25 basis points cut in the CRR.

Sunday, October 28, 2012

Still Rangebound, A Range Breakout to Decide Direction

It was again a narrow range day for the Nifty. A total intraday movement of 56 points (1%) but a better day, nevertheless, because it traded with a negative bias all through the day before recovering some of its losses in the last hour. I say, a better day because it went in the direction which we expected. And as long as it fulfills our expectations, it keeps us happy. And that's all that we desire from it. Just keep giving us profits if you want love from us. I still don't understand why the Nifty is still holding up. What is it waiting for - a cabinet reshuffle or the RBI monetary policy. Well, if it's one of those things then a move - this way or that - is coming soon. A move above 5725 would change (probably, though I don't like to change my views often) our bearishness.

I'm not attaching the chart of Nifty today as there is nothing new to show. However, as always am doing the daily analysis of some of the stocks. Friday seemed to be at bad day for the banking stocks. I say that because on my stock radar (the stocks that I regularly monitor), there were 13 stocks which closed 3% or more below their previous closes and out of those 13 stocks, 6 were banking stocks. Surprisingly, amongst all this negativity surrounding banking stocks, our buy call on OBC yesterday fell only by Rs.4/- and is still looking good for a move to 350.

Attached above is the daily chart of Reliance Capital, which has already come down quite a bit off its previous high. But, as we can see from the chart, Reliance Capital rose from a low of 315.10 in end of August to a high of 472.90 in early October, going up by 50%. Going up by 50% in 6 weeks is a big move and a big move is always (invariably) followed by a big correction. The same scenario was seen in Jan-Feb 2012 when the same stock went up 114% and then underwent a correction of 78.6%. This time too, after a move of 50%, I feel a correction of at least 61.8%, a Fibonacci ratio, is called for. The 61.8% correction will be completed at 375. That means a downward movement of Rs.42 (10%) from the current level of 417. Whether to stay away or to stay short - your call.

Attached above is the daily chart of Karnataka Bank. As seen from the chart, an inverted hammer formation on the top followed by a red candle signifies that the uptrend may have come to an end. And what an uptrend it was - a rise from 78 to 138 in six weeks, another big increase of 78%. And as I said before, a big move is followed by a big correction. In this case a 61.8% decline would mean the stock could come down to 101 whereas a 78.6% correction would translate into a level of 91. I see some good support for Karnataka Bank between 100-102 adding to the fact that 100 is a psychological support too and would expect the stock to come to 101, at least.

Andhra Bank's daily chart is seen above. An 8 month old trendline tested 4 times in the past was broken through but could not be sustained and today it came back below the trendline. In the process Andhra Bank has also made a pattern, which could be referred to as a double top, was also formed but would be confirmed below 105. A target for this double top formation would be close to 95 and I expect support to come in between the 93-95 levels.

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Thursday, October 25, 2012

No Change in Chart Patterns - Wait and Watch

Not much change in the Nifty chart patterns today. The Nifty traded in a very narrow range today - a total movement of only 33 points between the high and the low - not even a movement of 1% during the day. After a whole day of trading, the Nifty managed to close in the green but did not make any change in the chart patterns. Individual stocks, however, showed some interesting movements, some of which have been analysed below.

Attached above is the daily chart of Nifty. As seen above, the chart looks exactly similar to the one shown yesterday, except for the last blue candle seen today. Today, as seen, was a narrow range day and also a harami, which after an upmove signifies that a short term reversal may be coming. So, nothing much to comment there on the Nifty and our view still remains the same that it should come down to the trendline before we think of buying again.

Attached above is the daily chart of Ambuja Cements which showed a decent increase today. As seen from the chart, the price came near the trendline which was providing support near 200. The stock made a low of 201 today and reversed from there and made a high of 207 before ending the day at 206.10. This candle signifies that the short term downtrend in Ambuja may have ended for now. It may be a low-risk buy at the current levels with a stop loss of 195 and a target of between 220-225 can be expected in the coming days.

Pasted above is the daily chart of Sun TV which showed a big downward movement of more than 6% today and closed the day at 343.45 against yesterday's close of 356.60. This movement comes after a small double top formation which will be confirmed below 338. Also seen on the chart are the RSI and stochastics indicators which show a bearish divergence along with the corresponding highs on the price chart. I expect Sun TV to move down to the trendline between 323-325 before any fresh buying opportunities may exist.

On the daily chart of Havell's, as seen above, a large candle showing a downwards movement, and the kind of pattern seen seems to suggest that there is more to come. The stock may find some support between 607-610 but eventually will have to break that support and may go right up down to the trendline to find support between 550-560. Stay short on Havell's below 600.

This is a pattern which I love to see, as seen on the daily chart of Oriental Bank above. This is called a Flag pattern and is so called because it looks like a flag, as can be seen from the trendlines drawn. A flag pattern is a continuation pattern and the confirmation of this pattern on the OBC chart means that the stock may continue to go up and it may have a target of 350-355 on the upside in the days to come. The only thing that scares me is the bearish divergence seen in both the RSI and the stochastics.

Seen above is the daily chart of IRB. As seen from the chart, the price of IRB showed a big downwards movement today closing Rs.22 in the red at 119, a movement of over 15% in a single day. Not only did it show a big red candle, it also closed below the good support of the trendline at 123. It now has a target of between 85-90 in the coming days. It may either go there directly or it may show a bounce-back back to the trendline at 123 in next 2-3 days. The RSI also going below 40 signifies that there is no support expected near the trendline at 123.

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Tuesday, October 23, 2012

Rangebound Now, Expected to Go Down

The Nifty opened at 5715 today, tried to go up, could not sustain the upmove, went down all the way to 5681 thus losing almost 40 points from its intraday high but recovered a bit to close at 5691, 26 points in the red. This downward movement may have been triggered by the world situation still looking grim and the European markets showing a weak trend during the day. The Nifty, though looking weak, has still not taken a decisive downmove, but sooner or later, will.

Attached below is the daily chart of Nifty. As seen from the chart, it is moving in a tight range between 5635 and 5730. Since the day we suggested that the downward movement has started, Nifty has not been able to break its high on that day. Of course there have been up days (3) and there have been down days (9) during this time (12 trading days) but none of the days has showed a positive sign. I'm surprised that the Nifty is still holding on.

As seen from the chart above, a decisive downward movement can be expected only when the Nifty breaks below the lower end of the range at 5635. And the blue trendline is going to provide support to the Nifty near 5470 levels. A break below the trendline is sure to make us see lower values for the Nifty but it is too early to comment on that now. As seen from the MACD attached with the chart, we can see that in the last 15 days, it has been sloping downwards suggesting weakness in the Nifty. Even the RSI not being able to cross 60 despite 3 tests suggests that there is no strength left in the markets.

Attached above is the daily chart of Pantaloon Retail, which has today shown its weakest closing of 186.75 since 18th Sep 2012. The next supports that I see on the charts stand at 177 and then 166. I reckon, it may be a good idea to sell the stock for these targets maintaining a stop loss of 200.

Attached above is the daily chart of McDowells, which is again showing a lot of weakness but still holding on. As seen from the chart, the stock is finding it difficult to go above 1300. It has a bit of support near 1200 but there is a bearish divergence seen on the charts with the RSI and the slow stochastics. The downward sloping MACD also shows weakness and it has already given us a sell signal on 12th Oct 2012. If you have holdings in the stock, it is a good time to exit while fresh short positions may be built up below 1200 with a target close to 1050.

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Core Portfolio vs. Trading Portfolio

It was the time, many years ago, when I met a friend and asked him whether he owned stocks of XYZ company, which was quite in the news those days. And his reply, somehow, stumped me. It was a reply, which I didn't completely understand that time, but once I did, it carried a lot of meaning. His simple reply was that he had it in his trading portfolio but not in his core portfolio. And I didn't know what he meant. And when I asked him, he told me.

He told me that one should always have two portfolios. One - the core portfolio, the one which one should never touch and two - the trading portfolio, which requires your constant monitoring and modifications. This is what he meant. He said the market consists of all kinds of companies, some which are fundamentally very good, some which are fundamentally very bad and the inbetweens. Some companies are always in the news, maybe for the right or perhaps the wrong reasons and such companies always attract a lot of speculative interest. Such speculative interest brings in a lot of volatility and some good opportunities to make money.

Even though the opportunity to make money may exist in the short term but it may not be a very good company to hold for a longer term. And the stocks of those companies which you do not intend to hold for long should be disposed off as soon as your trading objective is fulfilled. Some people may have a trading objective of a 1% return in a day while others may have an objective of 5% in a week and still others who have an objective of earning 10% return in 2-3 weeks. And that's exactly how long these people should retain their stock. As soon as they get their desired return they should sell out and book their profits.

Of course, like the biggest traders and investors, you too may get caught on the wrong foot sometimes. You may have bought shares of XYZ hoping to get a return of 5%. The stock did go up 2% after you bought but then fell back down. You being a wise and a "patient" investor know that it will give you a profit if you hold on to it long enough. Two years down the line, your investment is down 50% and the stock has just become a part of your "core portfolio" and probably, it's always going to remain there even if the company goes bust. Don't you think that had it been a part of your trading portfolio, you would have got rid of it when it went 3% or 4% or 5% below your buying price? You probably would have.

That is the problem with most of the people who lose money. Their portfolio consists of shares that were "once in the news" but are down in the dumps today, it consists of shares they are "stuck" with and most of them do not have any shares which should really have been invested in. At the beginning of the millennium, when dotcom companies were the flavour of the season and when Microsoft was going great guns, the great investor, Warren Buffett was asked if he had invested in Microsoft. And his reply was that he didn't invest in shares of companies having a business he doesn't understand. And since he did not understand computers, he never invested in Microsoft. That doesn't mean that he did not make money from Microsoft. He did because it was part of his trading portfolio and it was in whenever it was in the news and out whenever his trading objective was fulfilled.

Remember, to make a company a part of your core portfolio, you must understand why it must be held for long term. You must understand the reasons and the logic behind your investment and only then should you make it a part of your core portfolio. And to make it a part of your trading portfolio, you don't need to understand anything. All you have to do is to dispose it off after your desired return has been achieved. A trading portfolio needs to be looked at daily or twice a week, but a core portfolio needs to be invested into and forgotten for the next 3-5 years. Unless, of course, something drastically goes wrong with the company that you have to dispose it off otherwise.

I hope I have been able to convey to you the difference between a core portfolio and a trading portfolio. In case you still have a question, why wait? Just go below this post and leave a question in the comment box and I'll answer it right there.

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Saturday, October 6, 2012

Downward Movement Starts

The Nifty opened stronger about 30 points up on Friday but heavy selling to the tune of Rs.650 crores by Emkay Global on behalf of an institutional client led the Nifty to touch a low of 4888.20, down 899.40 points (more than 15%) below the previous close. It is said that the quantities entered by Emkay Global were erroneous and that’s what sent the Nifty into a diving spree. You can read the complete story here. Such lows/highs made by the indices and stocks due to erroneous trades should be ignored and that’s what we are going to do today. Ignore the lows. But the fact that institutions are prepared to sell worth Rs.650 crores indicates that smart money may be getting out soon. 

Attached above is the daily chart of Nifty and shows that on Friday the body of the candle completely shadows the previous day’s candle and has formed a bearish engulfing pattern. Ignoring the freak low made by the Nifty, the close itself was about 40 points lower than the previous day. This is fully in conformation to our previous view that a correction may be on the cards and that it is a time to remain cautious. As mentioned earlier, a downward move at this stage may take us to levels of 5400 or thereabouts. However, there may be minor supports inbetween at 5695, 5645, 5535 and 5435. The Nifty may go down all the way to 5400 or find support at one of these levels. 5435 looks the most probable to me at this stage but we’ll just let the market decide as to how low it wants to go. 

Attached above is the daily chart of HDFC Ltd. As seen from the chart, HDFC prices lost ground on Friday losing almost Rs.40 in a day. This downward move not only brought the price closer to the trendline, but also has shown a bearish candlestick pattern, which suggests that further downside may be there and the prices may not find support near the trendline. This view is confirmed by the MACD and RSI, both of which show a bearish divergence with the price. HDFC has shown the weakest closing since 9/11 (11th Sep 2012, I mean), the last one month. I would suggest a sell on the scrip once the trendline is broken near 740-742 with a stop loss of 775. One could expect a first target of 691 and you could continue the sell position for a second target between 660-665. 

Attached above is the daily chart of Gold alongwith my favourite choices of indicators, namely the RSI and the slow stochastics. Another one of my favourites, the trendline is also plotted on the chart. As shown here, Gold has been in an uptrend since the beginning of the chart, with regular corrections inbetween and now, after a deep correction, it has come very close to its trendline which tells us that we may be close to an intermediate term bottom. Also supporting it is the slow stochastics which is now moving below 20. By measuring the Fibonacci retracement of the rise from 30098 on 7th Aug 2012 to 32783 on 13th Sep 2012, it was found that the 61.8% retracement level is at 31105 and that is where Gold seems to have found support. Some possible scenarios that come to mind is that Gold may go down one more day next week to touch the trendline (between 30850-30900) and then rise again. The second possible scenario seems to be that Gold may hover at the current levels for the next few days and wait for the trendline to come and touch the prices. And the third possible scenario, and maybe the most probable one that Gold may start rising from here itself since it has started showing a series of reversal candlestick patterns on the charts. 4th Oct 2012 saw the formation of a bullish hammer while 5th Oct saw the formation of a harami. I would be a buyer in Gold with a stop loss below 30700 and wait for targets of 32000 and above. 

An interesting fact to note is that in the international markets, Gold has risen almost $50 from 13th Sep 2012 from $1730 to $1780, a rise of 2.9%. In the Indian markets, however, Gold has fallen from 32783 to a low of 31041 during this period, a fall of over 5%. You must be wondering, why this disparity and shouldn’t Gold be trying to play catch up now? Well, not exactly, because the US Dollar in this period has fallen from 55.375 to 52.115, a fall of over 6%. So, even though, in dollar terms Gold has gone up and in rupee terms, it has come down, it can be safely attributed to the falling dollar. Now comes the tricky part. Gold may be in for a bit of a correction (downwards) in the international markets in the coming days, and so will be the dollar (upwards). If both happen simultaneously, nothing much is going to happen in Gold in India. If Gold falls and so does the dollar, Gold in India may go down further. If the dollar starts improving and Gold continues to go up, we may be in for a sharp recovery. In this light, I wouldn’t go about keeping targets of 33000 and above but be more realistic and will probably book my profits near the 32000 levels. In rupee terms, frankly, I don’t see an extremely bright Diwali for Gold but a slightly moderate one. 

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