Markets Remain Volatile

Whenever we trade in the markets, we either make a profit or we make a loss. Without any research and doing blind trades, our probability of making a profit is 50% (though, many of us would disagree, since more often than not, markets end up giving a loss rather than a profit). With Technical Analysis, we tend to increase our probability of making profitable trades, though only marginally. Technical Analysis helps us increase the probability to about 70%. And if we follow it religiously, we end up in the green over a period of time. Sometimes, markets do go against us even after proper fundamental and technical research. At those times, it is best to get out of losing trades with pre-decided stop losses. In volatile markets, such as these days, all our research may go for a six and these are the sort of days where stop losses come in handy. But to take profits from the markets, one has to accept losses too. That is a risk which one HAS to take.

The Nifty, as predicted in my earlier newsletters, is likely to remain in the broad range of 4500 to 5500 for sometime. A clear direction of the market can be predicted only after one of these levels has been broken. Till then, global and domestic events will keep disturbing the direction of the markets. In other words, till the global situation does not stabilise, we are likely to remain within this range and volatile movements, including gap up or gap down openings, are to be expected. In the long term the market is expected to remain bullish (at least till the time Nifty remains above 4500) and investors should buy on every dip. Traders should remain cautious with stop losses and should hedge their positions, or stay out of the market completely.

Hero Honda seems to be making an inverted head and shoulders pattern and a break through the trendline should confirm this pattern. Ignoring the movement in the first 15 minutes tomorrow, if it crosses above 710 after that then this pattern should be confirmed. One could consider buying it above 710 with a stop loss below 680 for a target of about 800.

IDBI seems to have broken out of this consolidation pattern and looks like it has started its upmove. A buy above 128 with a stop loss below 115 should give us a decent target of around 150. Avoid taking positions within the first 15 minutes of the opening of markets.

Same goes for Indian Hotels. This is looking very bullish to me. It not only seems to have broken out of the consolidation pattern but also has broken its downtrending line, which suggests that the uptrend may have resumed in this. Not sure about the price, but the RSI (Relative Strength Index) making an inverted head and shoulders pattern seems to confirm that the downtrend may be over. One could consider buying it above 142 with a stop loss below 125 for a target of 170.

I wonder whether this price chart of Tata Tea can be termed as an inverted head and shoulders pattern or not. Even if we consider that it is not a bullish head and shoulders pattern, then also it seems to have finished its downtrend. Not giving any targets as such, but buying it above 800 tomorrow with a stop below 740 should be a profitable move. It may face resistance between 950 and 1000.

Union Bank seems to have made a clear inverted head and shoulders pattern. Buying above 215 with a stop loss of 195 should be profitable for one who buys it. The target for this pattern could be between 260 and 270. It may face minor resistances near 225 and 235. While buying this should be profitable, yet one should be very careful because it is often said that "Clearer the pattern, the more likely it is to fail."

Please do subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

What a Week!!!!!

YO-YOING MARKETS

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.

Please do subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

Rangebound Markets

Nifty is in an intermediate downtrend and a short term downtrend while the long term trend still remains up. A market or, for that matter, a stock is said to be in a downtrend when it is forming a pattern of lower highs and lower lows. An uptrend is resumed, according to the Dow Theory, only when the most recent low is above the previous low and the most recent high is higher than the last high. As seen in the 30-minutes chart of Nifty above, the most recent low is around 4690, after which a rally came about and made a high of 5350 before coming down again near 5000 levels. Now, 4690 and 5350 are the levels to watch. 4690 will provide support to the Nifty and 5350 will provide resistance. Also to watch are the next low and high to be formed. But we can safely assume that once 5350 on the upside is crossed, we will be back in a short term uptrend. To determine the end of the intermediate downtrend, some consolidation/base building between 4500 and 5500 will be required.

There were a lot of low-risk buying ideas given for investors yesterday. Stocks which give us a buy signal from a short to medium term perspective will keep finding a place on this site. Needless to say, such strategies will be low risk strategies unless specified otherwise. As of now, in this volatile atmosphere, there does not seem to be anything worth putting your money on. Keep checking out this space on a daily basis for more ideas.

Please do subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future.

Happy Investing!!!

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!!!

End of the Markets

When the market moves in a single direction for a long time and all analysts are making claims that the markets will go higher, many investors come and invest in the markets. Most active are those who have been waiting for a long time on the sidelines and those who have “missed the bus” till now and are thinking that if they wait more they will “miss the bus” again. This leads the markets to go higher and at a much faster pace. This was what was happening in the market when they started rising since August 2007 from a level of 4000 (Nifty). Such an increase in the markets make valuations expensive and the “smart money” (the large investors and FIIs) start getting out because of two reasons:


1. The valuations are expensive and they would not like to stay invested at such high valuations.
2. They have bought at much lower levels and would like to sell to realize their notional profits.

This leads to bouts of selling in the market but the “not so smart money” (the retail investor) is still buying, which makes them happy because they wanted to buy in a correction but that correction was actually caused by the selling of the “smart money”. So, the “smart money” sells and prices come down, the retail investors buy and the prices go up. This process goes on till all retail investors make an entry into the market and all the FIIs are out. Then comes a time when there are no new buyers and the prices start coming down. The retail investors keep waiting because they have heard analysts speaking about higher levels and view this as a temporary fall.

Gradually, with more fall, some risk averse investors start getting out which leads to more selling. More selling means prices coming down further and then because of the increased risk, the margins by the exchanges go up. To meet those increased margins, there is more selling of stocks in the cash market, which leads to a further fall in prices. This leads to increased margin calls across the board and more selling and a sharper fall in prices. By this time, the retail investor has lost a lot of money and does not have any more money to put in in the form of margins. This forces the stock exchanges to close their positions and it leads to a drastic fall, as was witnessed today. This is what has happened in the markets the last week and today when the Nifty came down by 1400 points and the Sensex by about 5000 points from their respective all time highs. This process is known as capitulation when all the retail investors have got out and have vowed not to enter the markets again.

Suddenly, the valuations become cheap again because the fundamentals remain the same and the “smart money” is prepared to enter again. And the markets start rising again. That is why it is commonly said in the market parlance that, “When you think everything has finished, that is, actually, just the beginning (of another bull market)”.

We, at Surakshit, feel that capitulation was witnessed today and we should see the markets rising again. The worst may, finally, have been over.

The following articles may prove to be interesting reading. Click on the links below to proceed:

http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=322227

http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=322223

http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=322224

http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=322167

Happy investing!!!

Markets Down, Panic Up

In the past week the markets have lost a good 500 points on the Nifty and nearly 2000 points on Sensex. The swift downfall in the two indices has rattled a large number of investors.

As we have very often pointed out the surest way to win in the market is to control the emotions of GREED and PANIC. Investors who can conquer these will in the long run conquer the markets.



The question facing most of our investors now is “What to do now?” Well, there is no easy answer to this. The markets will do what they have to do.

We are in a long-term bull market. So far the market has not given any indication that the long-term trend has changed so we must assume that the primary trend continues to be up and hence any correction in the market should be taken as an opportunity to buy particularly for those investors who had missed an entry earlier. But any buying should be done only after one gets a confirmation that the Short-term trend has turned up. It is not wise to buy in a falling market.

We at SURAKSHIT SECURITIES have been trying to give you honest advice for the past seven years. We are now embarking on many new initiatives. First of these have been sending out a Newsletter to our clients. We hope it is proving of educational value to you. We shall welcome suggestions from our esteemed clients on how we can provide them better services. Do feel free to put up your suggestions on this site or else write by e-mail at sspl.mahesh@gmail.com.

Col. (Retd.) Mahesh Sharma

Nifty seems to have broken out of the channel shown by the blue lines on the daily chart of the market index. The Nifty fell by more than 200 points on Friday and almost 500 points in the last week. Such a sudden decline can bring about a relief rally. If any relief rally comes, it should find resistance near 5800. Prices above 5800 will convert this resistance into support. Crossing 5800, at this point of time, looks like a distant possibility. The Nifty may find support near the thick black line, which has been providing support and resistance to the Nifty since the last year or so. This line currently stands at 5500.

Hindustan Constructions has corrected from a high of 276 in the beginning of the month to 190 on Friday, a correction of more than 30%. 190 also happens to be a good support for this stock. This may be a low risk buying opportunity since our stop will remain very close. One may consider buying near 190 with a stop below 180. It seems as if the stock may find some resistance near 220, though, the target remains much higher.

Volumes decreasing with each successive top remains a sign of weakness in Petronet LNG. Though, 100 is a support for this stock but in the absence of buying volumes, it could easily be broken. Once below 100, it may continue to fall till it reaches 85.

Happy investing!!!

Trading Psychology

Your biggest enemy, when trading, is within yourself. Success will only come when you learn to control your emotions. Edwin Lefevre's “Reminiscences of a Stock Operator” (1923) offers advice that still applies today.

• Caution: Excitement (and fear of missing an opportunity) often persuade us to enter the market before it is safe to do so. After a down-trend a number of rallies may fail before one eventually carries through. Likewise, the emotional high and hope of a profitable trade may blind us to signs that the trend is reversing.
  
  

• Patience: Wait for the right market conditions before trading. There are times when it is wise to stay out of the market and observe from the sidelines.
  

• Conviction: Have the courage of your convictions: Take steps to protect your profits when you see that a trend is weakening, but sit tight and don't let fear of losing part of your profit cloud your judgment. There is a good chance that the trend will resume its upward climb.
  

• Detachment: Concentrate on the technical aspects rather than on the money. If your trades are technically correct, the profits will follow. Stay emotionally detached from the market. Avoid getting caught up in the short-term excitement. Screen-watching is a tell-tale sign: if you continually check prices or stare at charts for hours it is a sign that you are unsure of your strategy and are likely to suffer losses.
  

• Focus: Focus on the longer time frames and do not try to catch every short-term fluctuation. The most profitable trades are in catching the large trends.
  

• Expect the unexpected: Investing involves dealing with probabilities – not certainties. No one can predict the market correctly every time. Avoid gamblers’ logic.
  

• Average up - not down: If you increase your position when price goes against you, you are liable to compound your losses. When price starts to move it is likely to continue in that direction. Rather increase your exposure when the market proves you right and moves in your favor.
  

• Limit your losses: Use stop loss orders to protect your funds. When the stop loss is triggered, act immediately - don't hesitate. The biggest mistake you can make is to hold on to falling stocks, hoping for a recovery. Falling stocks have a habit of declining way below what you expected them to. Eventually you are forced to sell, decimating your capital.

Human nature being what it is, most traders and investors ignore these rules when they first start out. It can be a very very expensive lesson. Control your emotions and avoid being swept along with the crowd. Make consistent decisions based on sound technical analysis.