Markets at 5200-Which sectors to back now?

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?

Market Outlook

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.

Is this becoming a stock specific market?

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.

Stock Watch – KPIT Cummins

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.

How does media explain market moves?

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!

Will NIFTY get past 5200?

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.

Are you catching the big winners?

This market is all about catching the big movers. If you are riding the current moves in auto and pharma ( say a Ranbaxy or a Tata Motors), you’d understand what I am talking about.

Many investors are missing out on these big moves because they are quick to realize their profits.

Many failed to enter as they were waiting for a big correction!

Those who are  riding this upmove might also end up riding the downmove as they have no idea about their exits!

And many others will leverage so much that one sharp correction will throw them out of this market!

Do you belong any of the above categories?

Gold hits $1200!

For those who invested in Gold at the right time are enjoying the current ride. Gold is now trading close to $1200 with Gold touching  18450 today! As you know, I have been bullish on gold for last few months and continue to ride the uptrend in this asset.  I know investors get biased towards equities but one should definitely consider alternative assets like commodities in order to diversify.You might be really surprised on the upside in this asset.Read this.

Where are markets headed post correction ?

Friday turned out to be a nasty day for the markets after global credit problems resurfaced in Dubai. In this world of global finance, such problems can easily cause havoc.What seemed irrational was the fact that all the companies that are doing business in Dubai or Middle East were punished on the stock markets. This is what’s known as fear! Is it correct to assume that all companies that have receivables from Dubai will see defaults?

So is there any way to guard against such events? It is very difficult as one cannot monitor economies of so many countries! The only way to operate in such environment is to have proper risk management strategy. Otherwise, you will never know when death strikes!

If we didn’t have this event, things were looking bright for the bulls and they were on their way to take the markets to 5400-5500. Now things look a little muddled in the short term. It will be interesting to see if the bulls renew the buying or just step away from the markets.

My sense is that bulls would still like to play for the 5400-5500 levels on the NIFTY by Dec- Jan .They need to take the NIFTY back above the 5000 levels so that momentum buying emerges again.

Stock Watch – Jagran Prakashan

Jagran Prakshan which I had recommended 1-2 weeks back around 105 levels is also steadily climbing the charts. Keep an eye on this stock.

Sector Watch – Auto Pack, BEL

Auto pack is again picking up momentum and my picks in the sector are Maruti, Tata Motors, Ashok Leyland and Hero Honda. Infact, I had recommended the same to my subscribers about 1 week back (for swing trading) as one could see the big moves coming.

Even if you see in the slightly longer term a stock like Tata motors has been a clear outperformer. Back in July I had targets of 600 in mind and now it seems 750 is also possible in this rally.

Similarly, Ashok Leyland has been a great performer in our portfolios. The stock was picked at 34-35 levels back in July and already the stock has delivered 50%+ returns as compared to the index which has virtually not gone up more than 10% in this period!

There are many stocks and sectors that will give such outperformance in the coming months. The trick is to be in the right stocks at the right time, so that you can ride the big waves. You do not have to indulge in short term trading to make your money.

On a sidenote,  Bharat Electronics which I had talked about last week has suddenly shot up by 5-6%. Keep an eye on this beauty.

There is no need to run after a Bharti or a Suzlon or a Unitech.  Compare their performance with that of the stocks I mentioned above. There might be a temptation to bottom fish in these stocks but I’d advise every smart investor to exit on rise and every smart trader to short them on rise.

Definitely, there will be some sweet pickings in the telecom sector if you are a value player.The best time to pick such stocks is on the day when they announce “earning shocks”. That’s when you can buy the fear and make money!

So play this momentum while managing your risks. it is important to be aware of the fact that  this market won’t look like a bull market for all the stocks. That happens only at the end of a bull market phase. This might just be the beginning!

Who knows if we are entering again into a 2003-2007 kind of bull market again?

Stock Watch – GAIL, Hindustan Zinc, Bharti

Keep an eye on two stocks I had mentioned last week- Hindustan Zinc and GAIL. Both these stocks jumped up today with Hindustan Zinc jumping by almost 10%!

On the other hand, a telecom stocks like Bharti and RCOM are still slipping and I’d advise to stay away from the sector.