NIFTY Resistance at 3700!?!

NIFTY showing resistance around 3700. Chaiking Money Flow (CMF) also suggest distribution(sell) as the histrograph is in postive but in negative divergence.

ADX give away intersting indicator. ADX come down to around 34 suggesting slowing down of the speed. Further today -DI line has crossed over +DI suggesting bears in charge. Perhaps it is time to short if tomorrow remain the bears day!

Recording the history of Indian stock market

If you have entered in the Indian stock market anywhere during the recent bull run (2003-2007) , you are witness of one of the biggest bull run for Indian stock market. Now you are witnessing the worst performance of the markets. Each day , each week is worse than the previous.

Today NIFTY/Sensex made its biggest single day loss nearly touching November 2005 lows. This week is worst performing week. Reliance touched 990, losing nearly 18% in one day, shivering the entire market and players. Unitech lost 50 % , 30 Rs., in one day.

No analyst/market ,local or global, expert had anticipated such fall, the fall is simply unprecedented , just like the last bull market.

Dow Jones future is in 550 points down, and is not falling further because of the bottom is restricted by the regulators. US market is also expecting worst trading day. UK has gone in recession technically on account of negative GDP data published today.

Anybody who has entered into market during 2005 and holding any scrips of that level is also in loss also.

I recall headlines of magazine/news papers during 2003-04 about the bull run in stocks and gold (also in real estate) at the same time. It was pleasant surprise , as generally gold and equity always meet at cross road , one is rising when other is going down. Now the same thing is being repeated gold and equity both are going down as gold has touched one year low and at 684 USD.

Panic is everywhere, and panic has become so routine that newspapers/television channels have stopped taking note in its headlines.

However, such fanatic fall can be compared with equally fanatic rise in the market. During the bull run I recall the cheers at every 1000 mark achieved by Sensex some time in a single day. Now the fall is also mimicking the trend, but that sounds good. The rise was much more than fair values on account of GREED, and therefore the fall gollowed. But now the fall is also appear much below than the fair values on account of FEAR.

Today will be unforgettable (?!) day in the history of equity market all over the world, unless worse is still to come.

Will talk more in next post.

NIFTY at delicate and dangerous juncture

Market has been moving with violent volatility as reflected in ADX indicator.

(1) Today’s (22-10-2008) close has created Bullish Stick Sandwich pattern. Such patter is considered as reversal pattern.  Candlesticker.com explains this pattern as under :

Explanation:

In the Bullish Stick Sandwich Pattern, there is a downtrend going on. Then prices open higher on the next trading day and they reach to higher levels all day, closing at or near the high. This bullish act suggests that the previous downtrend may now reverse implying that the shorts need protection. The next day, prices open at a higher level leading some shorts to cover their positions initially but then the prices start moving lower to close at the same price as two days ago. This pattern shows that the market is finding a support level and now the trend may reverse from this support level.

Important Factors:

A confirmation on the fourth day is required to be sure that the downtrend is reversed. Confirmation may be in the form of a white candlestick, a large gap up or a higher close on the fourth day.

NIFTY Chart of August to October with indicators

2. Such Bullish Stick Sandwich pattern seemed to have appear between 29-9 and 3-10 , however market slipped heavily therefrom.

3. ADX line is surprisingly moving sideways indicating good amount of movement on either side.

4. MACD histogram is in negative but indicating positive divergence.

5. Volume is somewhat decreasing which is good sign during bearish market.

CONCLUSION :

As the NIFTY appears to finding psychological support at 3000 and creating base there.

Further reads about Bullish Stick Sandwich :

http://www.candlesticker.com/Cs54.asp

http://www.fxwords.com/b/bullish-stick-sandwich-candlestick.html

Spending habits of America and stock market

It has become apparent that the last bull run was caused by the over-spending of American consumers which increased the demands over all world. Read the report of  Dr. Peter Morici of the University of Maryland, wherein he said that at about 5% of GDP, the huge current account deficit indicates Americans continue to consume much more than they produce, and borrow too much from the rest of the world.

Now voices are raising about for changing  the overspending habits of American. Julian Robertson has emphatically stated in his recent interview with CNBC “that the United States is just getting into the recession,” and that the poor economy will last as long as 10 to 15 years“.

He further added that “I don’t mean to imply that this is going to last quite as long as what’s been happening in Japan, but when they went into their decline in 1990, almost 20 years ago, their people were loaded with savings—but [Americans are] all broke,” he said. “…If we leave out the home in the calculations, I’d say that 80-85 percent of Americans are broke. So they have to cut back on their spending.”

In one of the article at Kiplinger, Erin Burt clearely expressed the requirement of savings by the Americans.

“Yet somewhere in the past few years, we — along with Uncle Sam — have lost sight of that. We’ve fallen victim not only to keeping up with the Joneses, but also to keeping up with our own fantasies. Credit came easy, and we thrived on money we didn’t have. We could afford bigger houses, exotic vacations and huge TVs. As our whims ran wild, so did our debt. Live within our means? How archaic. If you can afford the minimum payment, why bother getting out of debt?

And as for savings, you have plenty of time to make up for it later, right? In the mid-1970s, American consumers saved about 9% of their after-tax income. Today, that figure hovers around zero, according to the Bureau of Economic Analysis. After all, you may have rationalized, why bother saving for tomorrow when you can have what you want today?

Welcome back to reality. Living within your means isn’t old fashioned — it’s smart and relevant, perhaps more today than ever. Debt isn’t a way of life — it’s bondage. Saving isn’t a drag — it’s rewarding, not to mention a great comfort in tumultuous times. These are eternal truths that stand in any economy.”

The Indian stock market also ran the tallest with the increase about 500% during 2003-2007 , as NIFTY went to 1000 points to above 6000 points  by that time. It is clear that bull run ,with such intensity, is unlikely in future as the engine, US economy, is falling apart in pieces.

In future equity will still give highest retun comapre to other investment avenues in long term, but do not expect the return what you ,perhaps, have had during this rally.

My mid-cap and small-cap selection

Previously I wrote about some large cap scripts I would prefer to accumulate during the panic. Here are some mid-cap and small cap scrips which I am accumulating. It is somewhat easy to analysis and rely upon large/ blue chip companies, but with mid-cap and small-cap it is quite difficult. And I heavily rely upon for Equitymaster’s recommendations for such scrips.

Equitymaster has always been valuation-based and reasonable  in their predictions. However, during the bull market their some of their predictions was known for achieving target within a week. But now things are different and Equitymaster and Ajit Dayal seem right in their approach.

Equitymaster has posted their review on 01-10-2008 about most of their all recommendation and they are firm and positive about the future. Followings are some of Equitymaster recommendations I am watching/ accumulating.

MID CAP (about 2 years target)

Jagran Prakashan : It was recommended in 91, now it near 71, and target is given of 120 for 2010.

Paper Product : Recommended at 51 , now 38 with target of 83 for year 2010. Good dividend yield as well.

Praj Industries : Recommended at 180, now around 126 with target of 250.

Gujarat Industrial Petro. (GIPCL) : Recommended at 60, now around 60 with target of 120. Good dividend as well. However, recent announcement of Gujarat Government about donating 30-40 % of profit of state run government companies is dampening factor.

SMALL CAP

No doubt small caps have much potential to grow and therefore Warren Buffet is also like small companies. However,   investment in small companies is highly risky, and small caps run once in a decade for cats- and-dogs as it happened in last bull run (RNRL, TTML etc.), so don’t expect that kind of return in  short period.  These recommendations have target period of at least of 4 years.

Parekh Alumniex (PARAL) : Recommended in 175, now around 100 with target of 595.

Srei Infra Finance : Recommended in 150, now around 60, with target of 450.

Compact Disc India (CDI) : Recommended in 82 , now around 39 with target of 320.

Ashai Songwon : Recommended in 39, now around 30, with target of 200.

Karuturi Global : Recommended in 23, now around 9, with target of 55. Still has somewhat high PE

Elgi Equipments : Recommended in 44, now around 41, with target of 154.

---

DISCLAIMER :  I may have and will have some interest in the scrips mentioned herein, and this is not recommendation to buy.

Indian Stock Market : Panic is spreading to lowest level

Today , when the market opened I saw Mercator Lines (MLL) at around38-39 and thought to add little in the bulk. So, I called my broker for placing the order, he symptomatically alerted me, “be careful, now it is bear market ahead”. I smiled myself and thought now the fact has been realized to the lowest level.

Ordinarily, brokers rarely advise you ‘not to buy’, not because they are losing commissions , but morely because it is our decisions to do so. But when a broker whispers about bear market, it is clear that ‘the last bull’ also has lost confidence in the market.

So, what will happen next? The valuations of all companies become zero? They will become bankrupt? Civilisation will extinct?

The answer is, after all these ‘Fear Factors’ , things will become normal- people will again find valuations attractive in the same companies for which there were no buyers in the days of panics.- Again some people will buy selected scripts- again they will become optimistic about the growth of economy- and they will buy some more- and that will increase stock prices- that will alert some other investors about the rising prices of shares, so they will try to get into the market expecting good return- that will also cause rise in prices of shares- by now Televisions and newspapers will take notice and make headlines about unusual price rise of share prices- which will create ‘Greed Factors’ among the mass…. and you know what will happen next.

It is correctly said that we have learnt from history that men never learn from history. So, till the human beings are there with there primitive emotions of fear and greed, bull and bear market will survive.

NIFTY : ADX is moving up on chart

NIFTY is sliding without any halt. During Mid-August-September NIFTY was sluggish which was clearly reflected in ADX indicator. During that time ADX indicator gone to its lowest point near 15, and thereafter it has started moving up and now is near 40. ADX indicator above 20 and in upward direction indicates that market is trending. However ADX line indicates the speed , but not the direction.

ADX and MACD plotted on NIFTY chart

+DI and -DI lines indicate that in which direction the market is moving. Presently -DI(Red line) is at 36 and +DI(Green line) at 12 , therefore there is quite gape between them. Therefore next few days will be decisive, as the market has got into trending phase, the market has sped up, now only the direction of the market is to be decided.

However, direction of the market is somewhat clear looking to the MACD indicator. MACD lines are continuously going down with negative histogram.Therefore, there is little left to guess about the market direction.

In my view the market is still somewhat costly, there still something to be discounted. The market can very well go down, perhpas NIFTY at 3000 and Sensex at 10500

What I am doing with my stock market investments?

It has been almost two years that I have started taking sincere interest (or at least what I think) in stock market. I try to read/listen everything about stock market and investing. However, I have learnt one thing that all these reading has not made me or will not make an investor with capital I, in few months. I have realized that like almost everything in life , investment in stock market is no different. One needs to remain patient during high low tides, I will need at least a decade of experience to excel at it.

I was lucky enough to enter during August’06 just before the market started peaking out. Thereafter the market had seen dream run (and nightmare thereafter).  It was amazing to buy  Reliance Natural (RNRL) between Rs. 17-00 when there was no movement. Tata Tele (TTML) was also lying low around Rs.17-00. Reliance Petro (RPL) was available at the IPO price at around 60-65. Grand daddy of all, Reliance Industry was somewhere around 1100-1200.

But then again, entering timely in the stock market is perhaps a hard thing, but exiting from the stock market is definately the hardest part. My many investments soared anywhere from 5 to 10 times (RNRL went from 20 to 230, RPL from 60 to nearly 290) but I failed to encash largely.

It is not that I had not sold and earned profit , but what happened that almost all my profit has been re-invested in equity. I did not diversify my investment (investing in mutual funds is not diversification, now I know).

Now, almost all of scrips I have got in my portfolio is either at the same level of my purchase price or below except RNRL and RPL, and I am afraid, perhaps they will also see their original purhcase prices.

Again, not many of scrips in my portfolio are cheap stocks. Most of companies are from A group, and others I have bought from at the recommendations of Equitymaster.

All I have to do is now to wait patiently for some time, 2-3 years is my guess. Meanwhile I will accumulate selected blue chips which offer good valuation in long term.

Fibonacci Arc on NIFTY

I have again planned Fibonacci Arc on NIFTY after its recent uptrend.

Fibonacci Arc on NIFTY (Click for view the larger image)

Please note that I am still trying to understand the full significance behind the Fibonacci tools. So, perhaps the interpretation of the present plotting of Fibonacci Arc may not be correct.

I have taken the high point of 02-05-2008 and low of 16-07-2008 as the lowest point , drawing from up to down. (Drawing trendline from down to up draws the arc differently).

I have also plotted Fibonacci Retracement on the same period. NIFTY uptrend had major resistance at the level of around 4545 (50% line) and today (28-07-2008) market is in uptrend but facing resistance above 4352 (38% line).

Looking to the Fibonacci Arc, NIFTY is finding support at the last line (100% line) remaining above it. Please note this discussion is purly for acedemic discussion, do not rely upon it. Any suggestio, discussion is appreciated.

NIFTY weekly chart with ADX-RSI-Elder’s Ray

Consistent five trading day in upmove has reversed the trend. Weekly chart of NIFTY clearly shows the uptrend and with many other indicators in that direction.

(kindly click on the image for larger view)

Positive Break out : From02/05/2008 to 18/07/2008 the NIFTY showed consitent downtrend and thereafter it gave positive breakout above the resistance line and closed above the line.

ADX indicator (Average Directional Index) (?) : ADX line was at near 58 in January’08 when the recent fall started. ADX line was in continuous getting lower and  presently at the lowest (21). Ordinarily when ADX indicator is below 25, it is good to avoid trading. However, the ADX indicator is at 38 on daily chart , but gradually lowering, implying loosing of strength of the trend and consolidation for some time. The ADX line is also moving below both the DMI (Green and Red) lines , which also suggest to avoid trading.

The green line in the ADX indicator implies positive direction movement indicator (+DMI). Surprisingly the green line started decreasing as early as in October’07 and went as low as at 9 during April’08. Thereafter it has started upside movement and at presently at 21. Ordinarily when the green line is moving up with rising ADX it is bullish sign, but presently ADX line seems to crossing below the green line which makes the situation little bit clueless.

Elder’s Ray (?): With the last week upmove, the bullish power on Elder’s Ray has gone above zero, in positive, at 86. However, on the weekly chart this upmove is not significant one. But on the daily chart the bullish power went upto 360, and it was highest on one year frame. If bullish power goes above zero, and makes the higher high , it is buy signal.

Relative Strength Index (RSI) : On the daily chart RSI went upto 60 in the recent move and now it is falling. But on the weekly chart , it touched to its lowest after the fall , to 32 and now it is rising.

So my reading for NIFTY weekly chart suggets mid-term uptrend and NIFTY after some consolidation may touch highs of 4800-5000 within 2-3 months