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Markets-the road ahead

Monday, November 12, 2007 Leave a comment Go to comments

As we discussed last week, bad news from the US continues to pour in at the fast pace and are shaking global equity markets. Also, this trend of “bad news” shall continue in the near future. The credit woes are coming back and another significant development has been the slowing of “tech sector”-the telecoms. First was Ericsson, then Cisco and now Qualcomm. Those who were witness to the 1999-2000 bubble might recall that telecom equipment companies were the first ones that showed signs of slowdown(the Nortels and Lucents of the world)!

I had advised my clients to cut all short term longs after NIFTY went below 5700. The bigger question which everybody is asking is- should I buy the dips or will this cut be deeper? The first level to watch shall be 5500 below that things might turn serious. The only way to protect yourself is to hedge your long term portfolio by taking couple of short positions. One should be out of F&O longs. Those in cash might get good opportunities to buy if they remain patient and don’t go aggressive.

I personally feel that we might not see another market high anytime soon.If you the large caps on NIFTY or Sensex- IT is down, Auto is down, Pharma is down,Telecom is down. Capital goods ,Oil and gas-these are consolidating after huge run ups. So what can take market to new highs? Things can change pretty fast but as of now I don’t see many stocks(may be an RIL) that can take markets higher. It shall be all about profit booking and building shorts.

One good thing is that the whole world is feeling bearish about equities- The markets might bottom out sooner than we think!

So keep your strategy handy.This is the best things about markets- they are always evolving and you have to adapt yourself to the market.

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  1. sagecapital
    Thursday, November 29, 2007 at 7:42 am

    Just 3 observations/instances doesn’t give me a confidence.
    The sample size is too small.
    Also, when the whole world knows about a pattern, the pattern sometimes doesn’t work out.
    Anyways- it is an interesting observation.

  2. Gautham
    Thursday, November 29, 2007 at 4:09 am

    I just went through this article. If it becomes true, we need to be cautious!

    http://www.moneycontrol.com/mccode/news/article/news_article.php?autono=314998

  3. shreekrishna
    Tuesday, November 13, 2007 at 7:29 am

    Thanks sage.

  4. sagecapital
    Tuesday, November 13, 2007 at 12:14 am

    Shyam-Good that you have realised this. “More information” doesn’t always makes you “more money”.
    An investor feels more confident when he has “loads of information”. It is this confidence which sometimes comes in the way of selling a stock which is going down.
    Investors pay too much attention to financial media- much more than what it deserves!
    Take every expert opinion on TV as just “another opinion”. Even a master trader like Rakesh Jhunjhunwaala always says- “This is just my opinion and I have every right to change it!” And super trader George Soros is known for changing his market opinions every other minute! All these guys are not slaves of their opinions where as most of the analysts on TV shall present all the “right reasons” to defend their point of view!

  5. shyam
    Monday, November 12, 2007 at 10:44 pm

    Sage !
    I agree with you, when ever I hear expert comments in the media, i am unable to trade and take positions,
    I get more confused, & if I follow my own rules I am
    successful.

    shyam.

  6. sagecapital
    Monday, November 12, 2007 at 8:18 pm

    Shree- Whether you get sucked or not depends on you.Market are much much beyond the technicals(stochastic,moving averages etc.). It is difficult to generalize things based on a small sample size.What happenned in the past might not happen again!
    The biggest challenge for the small guy in the market is “making his/her own rules”.
    We are trained by birth to “follow rules”.In society we go by the rules taught by our parents,teachers etc. In markets, we need to “make our own rules and follow them”. Most people get sucked in because they are do not follow any rules! All they know is that “they want to make quick money”.And in search of making quick money-people end up losing it all.
    And let me tell you, the media plays a very irresponsible role in the destruction of the small investor.

  7. shreekrishna
    Monday, November 12, 2007 at 7:39 pm

    Hello Sage,
    I accidently found this site and am very impressed.
    I agree with your views. We might see some fake rallies to 5800 ,becuse mkt sucks a lot of people. This is what happened in Feb07,mkt found support @50DMA and placed a suspect rally, collapsed to 200DMA. Probably we can play with alternate PA and CA on index with strict stop loss. Correct me if I am wrong. Thanks

  8. sagecapital
    Monday, November 12, 2007 at 5:14 pm

    Jatin-Thats more clearer 🙂
    Anyways today’s market action didn’t suggest that IT or telecom can bounce back!Check the latest prices on INFY,TCS,Bharti and Rcom.(Incidentally I find lot of guys long on Bharti and RCOM)
    FMCG -ITC and Hindustan Lever was the surprise pack that I had missed out.
    ITC has been stuck in this 150-200 range for ages now and makes these odd moves now and then. Or is this the beginning of a new uptrend in the stock ?
    Or are people just buying these dogs in order to save themselves from a bigger carnage in momentum stocks?

  9. Jatin
    Monday, November 12, 2007 at 3:58 pm

    Sage!

    You misunderstood me.
    You said you dint see all-time highs in the vicinity as there were no sectors left to lead the rally.
    What i meant was that the ‘Capital Goods, Oil & Gas’ would continue to dominate. But, you can expect a 3-5% bounceback in the laggards coz they’ve nearly bottomed out. (Take ITC for instance today)
    Shouldn’t it be sufficient to take the index to 5900 (and that aint an all time high ;-))?

    Regards
    Jatin

  10. sagecapital
    Monday, November 12, 2007 at 3:35 pm

    If you think so, then you are welcome to go LONG on Ciplas and INFYs of the world.
    You remind me of the guy who is holding iNFY since 2400 and is still hoping for a sharp recovery!

  11. Jatin
    Monday, November 12, 2007 at 2:09 pm

    Sage,

    Interesting post.
    I think 5500 has proved to be a good support.
    And apropos ‘IT is down, Auto is down, Pharma is down,Telecom is down’, maybe they’ll help in the recovery to 6k!
    😉

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