Coming week-Will the bears surrender?

The markets closed on a firm footing with NIFTY closing at 4318. The bears, though badly wounded, are still holding their ground.They are still hoping for a reversal!Sensing this,the bulls are getting more aggressive.

Lets revisit one of the earlier posts I had written about two weeks back. It seems like Scenario 1 mentioned in the post is finally panning out albeit at a slower pace. There is a minor resistance at 4325 levels and next stop for NIFTY is around 4350-4360 levels. It will be interesting to see as to how much fight bears offer at higher levels.We would definitely be watching out the price action around the previous top of 4362 and upto 4400 levels if NIFTY is able to cross that. Short term traders might be on extra vigil because this is the point where all shorts might finally give up on all “hopes” and start covering!

I am not sure what Indian Mutual funds are doing in this scenario. I remember hearing couple of fund managers(likes of HSBC) having about 10-15% in cash when NIFTY was around 4100 levels!Looks like they might have missed this rally!Probably they acted too smart in playing the waiting game and markets have fooled them by acting smarter than them!

Continue to follow the price action and so far it is indicating an uptrend.

Stock Ideas-LUPIN

Watch Lupin Labs which is a pharma company. This stock might break out above 750 and give good returns next week.Current trading around 740 levels.Here is the chart:

Stock Watch-ABB,GE Shipping, KMB,SBI etc.

ABB is moving fast from where it left yesterday!Now retail guys won’t touch this stock,so institutions might take it to levels they want.

GE shipping has again continued its upward march. Trading close to 355 levels. When we first spoke about it about 10 days back it was just around 305-310 levels. This is how strong stocks behave!

Similarly check Kotak Mahindra Bank or SBI .They continue to move higher. People wait for corrections and miss the moves sometimes.

MAH Seamless is another stock which we have discussed in the past,that is again showing renewed upward trend after forming good base between 620-630 levels.

Reliance Capital is forming a good base around 1070-1080 levels.Keep a watch on the stock.

If you want one IT stock,it might as well be I-Flex which has moved from 2450 levels to 2600+ levels in two weeks.

On the other hand watch the performance of weak stocks like Auto and IT. How have they performed as compared to these stocks?

Settlement Over-ABB,IFCI,NDTV,Tata Power are the stars

Settlement day has passed without volatility except for some last one hour spurt in the NIFTY. The NIFTY July futures are still at a discount indicating that people are still short on NIFTY futures.One can not infer much from this but this might induce “short covering” in case NIFTY closes above 4300 levels.

Let us see how some of our stocks have been doing.

ABB and IFCI have been the stars of yesterday’s trading having moved up in the range of 7-8%.Both stocks are hitting new life time highs and continue to surge upwards.They might move even more.

In banking sectors, SBI,BOI and KMB have shown resilience have continued to move upwards. UTI seems to have a failed break out and has fallen back to its 570-580 levels. Trading is all about this-some trades work out and some don’t!

IT sector is doing up and down movements.Seems people are “unsure” and “undecided” about the sector and no one is willing to commit big money. Wait till a clear trend emerges.

NDTV and Tata Power are other stocks which is beginning to move up.Keep an eye on the same.

Auto sector is definitely in a downtrend and it is better to avoid it. Tata Motors has some supports around 640-650 levels. Below that it might fall to 600 levels. If you are a counter trend guy, you might play for a small pop around these levels.

Today’s price action might be important in determining how the market shapes up next week. I am also keeping a watch on telecom stocks like Bharti and RCOM.

Are you an Investor, Trader or Gambler?

What is the difference between investing and trading? You ask different people and you will get different opinions. And if I ask you if you are a “trader” or an “investor”-you might promptly say that I am “long term” investor without even understanding what it means.I will just give you my opinion on this.

An investor is usually a “buy and hold” types. He lives in the realm of “hope”.He buys a security and hopes that the price will go up.He does his “fundamental analysis” and falls in “love” with his/her investment. Even when the price of security is going down,he doesn’t believe in selling it because he is convinced about his analysis. He doesn’t believe in timing the market but a strong believer in “valuation” and “growth” of companies whose securities he owns.His edge lies in his “analysis”.If his analysis turns out to be true, he makes money in the “long term”.Otherwise,he ends up losing badly.Check Infosys Fundamental view post to see how and where a “fundamental guy” can go wrong.

A trader is usually an “opportunistic ” person who believes in inefficient market theories. He believes that markets are driven by human emotions like “greed” and”fear”,so no stock is fairly priced at any point of time. He tries to take advantage of these mispricing and tries to profit from the excessive “greed” and “fear”.

A trader lives in the realm of “probability”.He never uses words like “should” or “will”.Like the markets “will” do this.Or the markets “should” do this. It is always something “might” happen and it “might not”. He is always optimistic that a trade might work out but turns into a “realist” when it doesn’t.Thats how he always manages his risk and believes in cutting his losses. Traders take ‘directional” bets and also use some “leverage” to enhance their returns.Traders also use “market timing” techniques to get an edge in the market. A trader can choose to trade a “single market” or “multiple markets” like stocks,commodities, currencies,bonds etc. Trading multiple markets helps him reduces his risk.

Usually when we hear the word trader “trader” we start thinking of “short term traders or intra day traders ” who buy and sell 50 times in a day. I would like you to go back to Infosys Trend Analysis post where we have a “long term” trading system that just produced 5-6 trades in 10 years. So difference between a “trader’ and an “investor” is not dependent on time frames.It is rather the difference in their “thinking” and “attitudes”!

Next comes the category of people who calls themselves “investors” or “traders” but are actually gamblers. They say that they are in the markets to “make money” but actually they are in the market “for excitement”. They treat markets like a “casino”.They DO NOT have any EDGE in the markets.They look for new ideas everyday, they buy and sell lots of securities everyday. They DO NOT understand risk! They get on a “high” when they are winning and then they start to overtrade. This results in heavy losses and they get into “depression” when they lose money.In order to “recover” their money, they double their bets and lose even more! In the end,the market throws them out and they lose their money and confidence.They were never in the markets to “make money”,so they get what they come for!

So you fall in which of the above categories? What is your “edge” in the markets? Think over these questions before you commit money.
Comments welcome!

Market Outlook-IFCI

Watch IFCI. It has closed above 51.2 levels. Find a sweet spot to enter. And do not forget the stop loss. For investors a SL around 45 levels and for traders who didn’t buy it y’day keep it below 50. The problem with tight stop losses is that the likelihood of their hitting becomes higher in such volatile stocks. “If” this trade works out expect a 10-30% return in next 3-4 weeks. And focus on the “If” not “will”.(The stop loss is to cover that “if”)

Today being the futures expiry day, the market might witness a slightly higher than normal volatility.This is mainly because of arbitrage players who buy and sell in huge quantities in cash and futures segment.

I feel most of the strong players might roll over their positions as longs might feel that NIFTY is till above 4200 and shorts might feel that NIFTY has not crossed 4300. I’d still place my bets on the long side as I feel NIFTY is still in an upward trend.

There are two levels to watch on downside-4215 and 4200. On the upside 4300 remains the resistance.

TITAN moves up, SUZLON breaks out

An interesting observation- JP Morgan downgraded TITAN yesterday and the stock has shot up again!

Suzlon Energy has breezed past its all time high of 1510.

Markets Update-IDFC,CRISIL,IFCI,IT stocks etc

APTECH, NIIT etc have resumed their upward journey after a brief hiatus. Check Top IT stocks list. I-Flex and FT were first to move and now it is NIIT and Aptech.

I am waiting for reasons why these guys are moving up whereas TCS,INFY are drifting down!Are these better companies or what?

CRISIL and IDFC also continuing from where they left.Already some brokerages have started to give outlandish targets on IDFC.I saw a target of 162 on IDFC by one such brokerage.Lets not boether whether it reaches there or not. if you are in, just ride it.
I feel this might be a time for some consolidations.I have personally observed that stocks which move too fast in a short period of time are not able to hold on to the gains.

Also watch out for IDFC’s notorious cousin IFCI. The stock might be bracing itself for a big move. Notice the close above 51.2 which remains previous high.

A good way to ride these is to tighten your stop losses as your profits increase. The idea is to minimize open portfolio risk so that in case of any sudden reversals,one is not caught off guard.

INFOSYS- A “Fundamentalist” view

I have received a good feedback on the Infosys Trend Analysis article. Thanks to readers who took time to read it and also were kind enough to post their comments. The intention was to “show” how trends work and how big can they become.

Having discussed a trend trader view of the Infosys stock from 1997, now let us look at how a “fundamental analyst” would have looked at the same price movement.This is also how majority of people in the market behave or react to stock price movements.For those who have not read the previous article, I would request them to read that post first in the “Education” section before proceeding further.

Lets go back to 1997,when Infosys would have first made a high of Rs. 8 and then again a high of 11. Whereas a trend trader would have entered the stock, no fundamental analyst would be even looking at the stock. Why? because nobody understands IT and its potential.Obscure company-obscure sector. Who cares?

Now again stock starts to move up in 1998 from 50 odd levels and slowly reaches 300 levels in July 1999.Some people start to notice it and people start asking their brokers about the stock! They are in a hurry because they know some “trend traders” are already profiting from the move.Now fundamental analyst starts to look at the stock and tries to find “reasons” for the stock move.People won’t buy it till they know the “exact” reason and the analyst provides that “reason”. By that time, the stock has moved further to 600-700 levels. So our Mr. Analyst says that the stock has good “growth potential” but it is expensive, so buy on correction.

But interestingly, the stock does not correct and continue to move to 1000 levels. The “analyst” keeps on “upping” is buy target but is not able to catch the stock. Meanwhile, the stock is flashing everywhere in the press and everybody is gungho about the stock. In this phase of irrational exuberance,the stock reaches 1700+ levels and the analyst advises people to wait. The climax happens and the stock starts to make sharp downward moves. As soon as the stock reaches 1300-1400 levels, the trend traders start to exits as according to him the trend is “reversing”.

The Analyst at this point of time feels happy because his buy price is coming . He asks people to start “accumulate” the stock at 1300-1400 levels. The stock price falls further to 1000. The analyst feels even happier and asks people to “add” more. The stock falls further to 700 and analyst says “buy” more. The clients borrow money and add more. After all what was good at “1000″ levels must be extremely good at 700 levels. Although people who bought the stock at 1400 are facing “huge ” losses, they trust our “analyst” and he is still keeping them on “hope”.

At this point the downward trend accelerates and the stock goes to 300-400 levels. Now Mr. Analyst brings a “new” recommendation saying that “IT sector” doesn’t look good because of slowdown in the US. so INFOSYS gets a “sell” call.This is the time people can no longer stand the pain as they are already leveraged and can’t stand the losses.

Thats when they decide not to enter markets again. Meanwhile a trend trader is keeping his calm because he has not only made money when the stock was going up but also made some money while it was going down!

Moral of the story- buying low doesn’t work all the time.It can compound your problems.

When will it bounce back? Will it ever bounce back or not? What will happen to rupee dollar equation?What will happen to US economy? Will there be an IT slowdown?What will happen after IT tax holiday ends in 2009? If you can accurately predict all of these,then you can decide to buy/sell Infosys based on that.

Meanwhile, I will keep it a little simple and just look at the current trends and follow them. Currently, INFOSYS is in a sideways/downward trend. I will buy only when an upward trend appears.

Sector Watch-Telecom

Bharti Airtel and RCOM both are consolidating nicely and slowly trending upwards. I have already discussed Bharti Airtel before. As it has closed above 830,the chances of it continuing the uptrend has increased.

RCOM has resistances around 531-532 levels beyond which there could be accelerated move.

Idea Cellular might give a move after it closes above 120 levels.

Is this Spice IPO “rub off” effect?

Markets Update-Bharti is up around 1.5% while RCOM is still failing to cross 532 levels. CRISIL is again locked in the upper circuit for second day in the row. Is it going to be the next Divi’s lab in the making?

Reliance Capital which we have been discussing again and again after consolidation has moved up again to 1120 levels .Just because a stock stops for some days doesn’t mean that the uptrend is over!The stock has moved close to 7% from 1040 levels within a week.

Look at IDFC. It is slightly down and consolidating. Does it mean that uptrend in the stock is over?

Titan is almost up 8% at around 1270 levels hitting new lifetime highs. This makes the stock probably a little more expensive!

NIFTY is also slowly inching upwards.Currently at 4276 levels.Check what we had discussed last week to get the perspective and trade accordingly.

Stock Check-IDFC,NDTV,GE Shipping,CRISIL

IDFC, NDTV, GE Shipping and CRISIL,Asian Electronics,Titan are continuing their upward march.

STAY with your WINNERS and get out of your LOSERS.

What is value- Look at Titan!

This stock is not meant for value pickers! The stock has always traded around PE’s of 50.I have seen consistent “Sell” calls by brokerages ever since the stock was 400-500. ‘Sell Titan as it is too expensive”-Thats what they say!

The stock has replied back with a continued uptrend and is now trading close to 1200. It is not a coincidence that this is again a Rakesh Jhunjhunwala stock!He has even added to his Titan positions in his portfolio.Should we think that all these analysts are “intelligent” and Mr. RJ is a “fool”?

To Quote Mr. Rakesh Jhunjhunwalla on “value”:

“My markets’ experience tells me that good stocks and good markets always remain expensive because market intelligence is better than the participants’ intelligence.”