Though it has been a while since Sage wrote here, we assure you that the absence was well worth the cause. Sage and I have known each other for a long time and we share our passion towards markets and investments. Some of Sage’s readers may remember an earlier post where Sage mentioned having partnered with a friend to explore how momentum and value strategies can be combined for higher returns and lower risks. Sage and I have joined hands to bring to you an independent stock advisory service with the objective of combining momentum and value strategies. Towards that goal, we have teamed up to bring to you http://www.rupeetribe.com.
http://www.rupeetribe.com combines momentum and value strategies of investing. To read some of my articles on the value approach, please visit Value Watch. We have launched Value Ideas, a product which analyses companies from a value perspective. Sage is continuing with his analysis of the markets and trends. His product has been renamed to Momentum Ideas.
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Two sessions was all what the bulls required to get back in front. This is always an interesting thing in market 1-2 good sessions can sometimes change the complete market picture! As there might be quite a few shorts in the system still left, one might see extension of this rally.
As mentioned in the last post, I had advised to trim the positions as the short term outlook was not clear. Now that some momentum is back in the system, traders can slowly start deploying cash again.
If I see sector specific moves- Steel, auto and IT come to mind. Did you have a chance to look at SAIL, Tata Steel and JSW Steel? Have you noticed how Tata Motors is climbing steadily? Did you know that Wipro is finally reaching levels it had last seen in 2000?
Banking sector also got a reprieve last week with signals coming from the government that rate hikes might not come as quickly anticipated.
Another positive sign is the lack of intraday volatility. This makes the job of the bulls much more easy.
This year is closing on a good note. Q1 2010 might still be okay as long as general scepticism about the markets prevail.
Haven’t you heard from the market experts that 2010 might not be as good as 2009?
Last week has been very hectic for me and I have not been able to write much. The markets have also played some tricks in my absence. The much anticipated 5200 was never crossed and now we are staring at 4900!
This poses the big question- Should one book profits now or will the uptrend resume?
As the markets have gone sideways, it is usually very difficult to get a handle on the next moves. The best strategy in such conditions is to reduce your risk exposure and stay in atleast 50% cash if you are a short term trader. This is just following the old saying – ” When in doubt, stay out. ”
Also I am finding more and more sectors falling out of favour with the bulls. Right now only IT and Pharma are still carrying this bull market on its shoulders. Oil, telecom,capital goods,banks,auto etc are slowly falling out of favour with the bulls. There is stock specific activity still happening in this sideways market. We did pick some stocks that have rocketed by 40-50% in last 1 month but that cannot be said about the overall market.
Although, in my short term portfolio I am still playing for the Oct-Jan bull phenomenon but with a much reduced exposure. That will make sure that even if I am wrong, I don’t lose much. One can increase the exposures once markets show some signs of getting past 5200. Also, I am focussing a lot on small and midcap space in search of momentum. I can still find couple of ideas in that space that can rocket in next month or two.
As far as long term is concerned, this market is still in an uptrend. 4500 is a good base for this market and might provide good entry point for the long term players if markets correct. 4900 and 4700 are other supports for this market on the downside.
With the overall markets drifting sideways, this is indeed becoming a stock specific market. Take two stocks for instance- Wipro and BEL. While overall markets are doing nothing, such stocks are hitting new highs. When I had recommended BEL couple of weeks back on this blog it was around 1500 and I had a long term target of 2000 in mind. To my surprise, the stock has hit 1900 in less than a month!
Similarly, IT stocks continue to surge upwards. The primary reason for this upsurge seems to be some “certainity” about these stocks. The only uncertainity about the IT stocks are the currency moves. With dollar gaining strength and FII flows being muted, investors are more or less sure about rupee stability in the short to medium term. And with the news of US economy improving, traders are betting on these stocks and playing the short term momentum. Infact, I was myself neutral on IT stocks but the market moves force me to change my opinion.
On the other hand, banking and auto stocks are facing some uncertainty due to an imminent interest rate hike by the RBI. This might be one of the factors for loss of momentum in these sectors.
Although I am still playing the market on the long side but things are now becoming very much sector and stock specific. One negative thing is that more and more sectors are losing short term momentum. On top of it, some of the old favourites in the capital goods space like L&T and BHEL are not rising to the occasion.
My advice would be to stay in some cash at this point of time and reduce the overall exposure. This cash will come handy to ride the next moves. I still see no reason to abandon the bullish bias till markets give a sign of breakdown.
KPIT Cummins , one of the stocks which I have discussed on the blog, suddenly flared up by almost 10%. Many of my subscribers have been riding this beauty from 70 levels back in August. The stock has delivered 100% returns in about 4 months. This one has outperformed the indices by a wide margin and carries the potential to be a multibagger.
There are many such stocks in the midcap IT space waiting to climb up.
Today was an interesting day. The markets suddenly spiked up in the afternoon and I saw TV analysts scratching their heads trying to explain the market moves!
It is so easy for media guys to explain the market moves- If Asia is down and our markets are down then say that we are following Asian markets. If European markets are in the green and Indian markets are in the positive territory, then simply explain it by saying that markets are taking cues from Europe!
Today’s spike could neither be explained by Europe or Asia. That’s why all the experts were running for cover. Finally one of the experts pointed out that markets are rising because of India’s strong GDP number!
That way every investor can explain each and every move in the market.
So do you really think these media channels help take you take better investment decisions? Unfortunately many of the gullible investors take these TV commentators to be great financial experts and lose their shirts in the markets by following their advice!
This is the question that is being asked by every trader and investor. I am still playing for 5500+ by Jan 2010, although I am not too sure as to which sectors will probably take it there.
So far auto, IT and pharma have been the leaders in this rally. If this market has to go past 5500, we need some buying in stocks like Reliance, BHEL and L&T. So I’d be keeping a close eye on these stocks and will try to catch the next big wave in them( if it happens!)
Auto and banking might be a bit of a drag on the index if interest rate hikes come through earlier than expected. Although in the long term, banking is definitely looking like a star performer.If the Indian growth story returns, this is a sector that will benefit the most from any upturn. So any correction would be a good opportunity to grab these stocks.
What I like the most about current market action is the absence of widespread euphoria. The retail investor is still sceptical about this rally and is happy to earn his 6% in a fixed deposit. As long as this risk aversion prevails, this market might continue to climb slowly.
Technically, 4970-80 remains a good support in the short term. On the upside 5200 is the critical hurdle. Above 5200, we might see a lot of short term traders jumping in and chasing market momentum.