Over the past few days the cracks in the Broader Market has hurt lot of investors/traders. But we have been finding some hope with index still being above 4700. ( this is untrue )
Broader market is at 3800 and 13000 levels. ( look at this image - - https://www.nooreshtech.co.in/wp-content/uploads/2011/10/NiftyataGlance.png )
Also over the last many months the strategy has been to be very stock specific , conserve cash and capital as well as be patient.
Although as much as we try to look into the long term positives technicals are still not pointing a turnaround but only giving good entry and exit points.
The trend remains down but we need to watch for any turnaround signals till then focus would only be on extreme short term trades or value picks.
Above all there is no point being brave in a falling market and rather be meek and slowly buy. With equities Panic has no Logic so stocks can go to highly depressed valuations and stay there in a risky period. But this is the best time to research stocks !!! So readers can mail me their views on specific stocks here firstname.lastname@example.org or comment on the blog.
Sensex Technical View:
Lets keep it simple
-> Down channel continues till we dont get out of it there can be no bullish or turnaround hopes but the swings in the channel are good 10-15% so one can time entry and exit.
-> 15300-15600 is a major important support level over the last 2-3 years.
-> 14500 is the 50% retracement.
-> RSI has just hit 30 but still is not heavily oversold but closer to 4500-4600 we may get into that zone.
-> Dollex 30 and Defty ( Sensex/Nifty in dollar terms have hit new yearly lows ) and now close to 14500 and 4400-4500 equivalents.
- > We would now wait for reaction to 4700 ad 4500 levels.
Also certain other things to look at
USD – INR is up big time and is showing we may get into a similar time zone like October 2008 to March 2009 consolidation on equities.
We will wait for further reaction above 52.5.
Dow Jones has just given a breakdown.
Gold has given a breakdown in comex but because of Rupee depreciation it has not taken a hit in MCX.
Continue with stock specific long term buying but it has to be high quality stocks and dont buy just because the stock has fallen 30-50% in short time.
Many of the stocks i like have been discussed recently in previous posts.
Some stocks under review ( NOT A BUY CALL need more inputs ) – India Glycols, Coal India , Piramal Healthcare ( have been waiting for 300 levels for quite long ) , Escorts, Suprajit Engineering, DIC India, Clariant chemicals, Anil Limited.
For more of our services please check www.analyseindia.com
Sensex Technical View:
-> The fibonacci retracements are placed as follows
38.2% retracement – 15500-16000.
50% retracement – 14500.
61.8% retracement – 13000.
BSE Dollex 30
This is a good indicator as the major inflows is through foreign sources.
The index did not cross the 2008 highs and could only recover 80%.
At the same time it has already retraced 50%.
61.8% retracement is placed at 2300.
So a quick look at it would say Sensex has done 14500 in dollar terms.
BSE MIDCAP INDEX :
This is where majority of the portfolios are focussed at for retailers/HNIs as well as funds. This index could not recover the fall of 2008.
Its already down to 50% retracement and any further panic it can go to 5000 ( 61.8% )
BSE SMALL CAP INDEX:
This is one of the best indicator of panic in the markets.
Index is down to 61.8% of the current rally of 2009-2010.
In major panics indices go down to 73.6% ( Sensex went to 8k similarly in 2008 )
So we may expect it to bottom out at 5100 in panic.
Similar levels for Nifty are 4300-4400 for 50 % retracement.
The downtrend in the index which started post the breakdown below 19900/19000 remains in place. This will not be reversed till we get into a strong consolidation.
Also generally we see stocks hitting 20% down circuits/ panic falls/ end of day selling / sharp drops with moderate volumes/ bankruptcy rumours either in the middle of a bear market or by the end of it.
So we are witnessing quite a lot of such scenarios.
In such a period there is no point being brave and buying stocks which are falling – ( for example crompton, lnt may be great companies but the way they are falling it wont be a wise decision to go for bottom fishing. One may also keep a strict stoploss even if its an investment position or buy in very very small sizes and spread your buying ). The reason to not jump in is PANIC has no LOGIC.
Focus on quality stocks where there is a good amount of margin of safety or stay on high cash. We have been slowly deploying cash whenever index goes below 4950 with a view to be able to complete buying by 4500-4400.
Also the stocks on radar are solid companies like Godrej Inds, Aditya Birla Nuvo, Smartlink, NESCO and some more. Rest continue to have a bullish view on large cap cements and may look to re-enter on dips if at all they correct. One of our favorities HUL did 400 as expected and one may now look towards Cements to be a defensive segment.
The approach should be to conserve capital and be very selective as i believe many stocks may look cheap but they might be dirty :).
Of late many of us have been talking about the Index and a good feeling comes is that Nifty and Sensex have just fallen 25% since 2008 or 2011 highs which is not really bad.
Everyone around the street is taking their best guess on the where would Nifty/Sensex bottoms out.There are too many camps some expecting 12000/3800 another at 14500/4500 and rest at 15500/4700 as to be possible bottoms.
Although my view has been 4500/14500 to be the worst in case but would prefer to stop guessing the bottoms for the Index as i believe we may be closer to 5-10% of bottoms for many stocks.
During my analysis tonight was trying to look at a statistical bottom and tried using excel which i am not good at( so mind me if any errors in numbers ) but i was really surprised at some data points!!
1) Majority of the Indices did not reach highs equivalent of 21k Sensex and 6.3k Nifty.
Some observations on this
- > Bse Midcap is down 42.6% in comparison to 2008 highs and down 33.13% from 2010 highs. Is now equal to what it was in May 2006 ( Sensex equivalent high of 12700 )
- > Bse Small Cap is down 53.33% in comparison to 2008 highs and down 41.54 % from 2010 highs. Is now equal to what it was in January 2006 ( Sensex equivalent of 10500 ) and 3-4% away from September 2005 ( 8000 Sensex ) .
- > Bse Dollex – 30 and CNX Defty ( i.e Sensex and Nifty in dollar terms ) is down 40% from 2008 highs and 33% from 2011 highs.
Now the above thing implies the mid-cap and small-cap which comprise major portfolio is down by 40% from 2008.
For the Foreign Money ( FII ) they are still down 40% from 2008 and if i were to take a direct comparison in dollar terms Sensex and Nifty has already touched 4500 / 14500.
2) Some of the Indices have totally outperformed and are way beyond 2008 highs !! or Sensex 21k/Nifty 6.3k
- > Many indices are still way above 21k/6.3k equivalent levels namely ---BSE FMCG – 48.5% , BSE – Auto – 41% , BSE Healthcare – 29%.
-> At the same time BSE consumer durable –13% , IT Index –8% have also fallen less in comparison to benchmark indices.
What the above statistics shows is that an outperformance in few constituents of the benchmark indices like Auto, FMCG, IT and total underperformance by Capital Goods, Metals, Oil and Gas, Real Estate, Infrastructure has created two different indices.
One group of stocks is down 50% or more and the other group is positive returns in last 3 years. For example Reliance is down from a high of 1630 to 767 which is a 53% drop and is the highest weightage in the Index !!!
The markets have already corrected a lot more then what it looks like from the benchmark indices and there are a lot of stocks which are available at 2006 prices !!! ( Midcaps and Smallcaps ). So for a long term or even a short to medium term investor the thing to look out for is stock specific valuations and prices.
Imagine if you would have bought a Hero Honda at peak of 2008 you would still be up 120% in this fall too !! But remember Hero Honda was not a great performer in 2004-2008 bull market ( it just doubled in 3 years whereas Reliance Inds did 8 times in the same 3 years )
So themes will change over the next 2-3 years and one should be on lookout for quality stocks irrespective of the INDEX !!!! Focus on buying quality stocks !!! or else you might be left waiting for index bottom.
Also please find attached a snap shot of Nifty 50 stocks and their performance. We will look into the details in next post.
Just one quick observation
Stocks like SBI, Tata Steel, Tata Motors, Bhel, Axis Bank , Jindal Steel and almost 10-15 stocks have fallen more then 40% in the same period when Nifty has dropped 25.04% !!
Have a look through the image below for more idea. ( Click on the image to enlarge )
Although i have been consistently posting about staggered buying and then updating to book the same in the past many swings in the market but today will try to look into a simpler chart on weekly basis.
If we look at the chart we have lot of supports at 15400 band and later at 14500-14700.
At the same time if we were to look at 2008 scenario at 10000-10500 it seemed like markets are bottoming out but the Lehmann Moment killed it. Only difference this time around is the fall is slow and structured consolidation whereas last time it was a much steeper downtrend.
Also this time around everyone is prepared for the worst with Options Volatility at 40 levels, Low Leverage , Very less retail participation, Gold peaked out, High cash with funds/investors. Generally market tends to surprise on the unexpected.
People dont expect a repeat of 2008 so it has to be much bigger then creative thinking and neither do people expect a sharp reversal.
So what could be the unexpected --- We really cant predict a lehmann type of moment so we will stick to buying staggered in the investment zone and stick to quality and be ready to take a 10-15% hit on the portfolio in worse case.
Another chart shows RSI will give positive divergence on any new cracks.
Also as a trader the current dip is not very convincing as RSI is rising in the current fall unlike the previous
dip to 15700 as shown in orange line.
Any new low below 15700 would actually give a positive divergence. This makes me a little wary of taking shorts or would stick to intra sells or max btst in current conditions.
Investors who go staggered from current levels will get a good chance to book partial profits on rise.
Also many index stocks are showing RSI positive divergences !! so risk of getting trap on shorts or stopped out is high. As traders its better to wait out.
Those who would like to know the list of stocks to buy in current sections may subscribe to our Advisory Sevices – www.analyseindia.com
Happy investing ,
Time-Wise correction so be stock specific. Recent bottom tested at 15800.
Important support levels remain in the zone of 15400 ( + - 200 ).
View remains to buy staggered but quality stocks.
First signs of turnaround would be when we see a close above 17300 levels.
TECHNICAL ANALYSIS TRAINING SESSION --------------- MUMBAI OCTOBER 1 –2
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Also would suggest readers to take this bearish phase as the best time to learn technical analysis so that you can profit from it in the future. The best time to learn is now !! and the 2 day training programme we conduct is the best way to do it and all it requires is an interest to learn and no other pre-requisite knowledge.
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USD – INR – Nearing major resistance and now near 2001
- USD-INR after making multiple bottoms at 43.8 zones gave a breakout above 45 recently and has spiked up sharply. The target projection for such a breakout would be 49 in short term which has been reached.
- At 49-49.2 we have lots of previous bottoms/tops acting as resistance and with a such a sharp rise we may expect USD-INR to consolidate and even dip a bit to sub 48 levels.
- Also the major top for USD-INR last seen was in 2002 around 49.05 levels. The only time has breached above 49-50 levels was in the panic of 2008.
- So in the near term as well as medium term 49.2-49.5 becomes a critical level and also a possible topping out case.
- Only a move above the level of 50 could imply a panic in currency like 2008 but it was very short-lived.
USD-INR and SENSEX
USD-INR – Green Sensex – Red ---- Line Charts
If we try to compare various peaks/troughs( shown by blue circles ) on Sensex with USD-INR its generally seen major bottoming out formations have come with a spike in USD-INR. Comparing the current correction with 2008 it is seen that a dollar spike between 49-52 creates a very important long term bottom.
Also one thing noted is USD-INR has never stayed above 49 levels for more then a few months. The max period being 1st half of 2009 when markets bottomed out and we saw a lot of foreign money coming in post that.
Looking at a similar comparison possible scenarios would be as below
a) USD-INR tops out at 49-49.5 and Sensex is pretty close to important bottom.
b) USD-INR sees a spike to 50.5-52 with a panic like scenario in Sensex taking it sharply down for a short jerk.
c) USD-INR goes over the roof of 52 ( not consided as of now- Out of the blue scenario ).
The USD-INR relation suggests that next few months could be a bottoming out phase for Indian markets ideally with a possible top at 49-49.2.
In a worst case scenario we may see a spike in USD-INR to 50.5-52 with possible negative global announcements but such a crisis phase has not lasted more then 3-5 months. The strategy should be to increase equity exposure in panics.
On a simpler note for alll the readers sitting out of India the next few months are the best time to transfer money slowly over the next few months. With very high interest rates in India even if US dollar runs away to 52 the Interest Rate will take care of currency risk. Just my view no idea on tax or transaction charges 🙂
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Happy Investing ,
Eicher Motors – Stock has hit 52 week highs in falling markets 🙂 which clearly shows the strength.
Accumulate on every dip stoploss 1300 medium term target price 1600-1700.
Disclosure: We have a buy on Eicher, Berger and other stocks discussed and will be from a little lower levels or closer to current market price 🙂
Sensex supports at 16200-16400. Resistance at 16800-17300. Long term supports at 15400-15600.
Jain Irrigation -
A nice triangle pattern waiting for a breakout above 180 levels. Can jump to 200 + in short term.
Deepak Fertilizers -
Yet another fertilizer stock which is shaping up nicely for short to medium term. The others we are recommending is GSFC and Chambal.
Investors can look to accumulate the stock with medium term view and target of 185-200++.
TVS Motors – The stock has finally broken out of a sideways range and may now piggyback on the move in Hero Honda and Bajaj Auto.
Sensex Technical View:
The view remains simpler as mentioned in our previous presentation to book partially on rise at 16800/17300 levels.
On dips we may watch for the 16000-16400 support zone to hold.
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This is a detailed update on the current market scenario with our favorite stocks. In our previous updates a couple of weeks back at 5400-5100 we had mentioned one should at least keep 50% cash.
We consider the next few weeks would be a good time to start deploying cash but keep in mind to book partial profits on bounce backs.
Expect the markets to find a short term bottom in the range of 15600 ( + – 200 points) and traders can keep a stoploss of 15400 on closing basis if going leveraged.
Download the latest presentation from the following link below
Happy Investing ,