Markets Uncertain

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Today, we have got the daily chart of Nifty. It has been expanded to see the last 2-3 candles more clearly. Looking at the circled bar, which is known as a candle, formed 3 days ago and marked as circle ‘A’, we find that this candle has a long lower shadow, a very small body and a negligible upper shadow. This sort of a pattern is known as a ‘hammer’ in Japanese candlestick charting, simply because it looks like a hammer. A hammer signifies a short term uptrend. The same pattern, when it comes after a long uptrend, generally suggests a short term downtrend.

Now, let us look at circle ‘B’. We can see that this candle has got a virtually non-existent body, and a long upper shadow, with again a non-existent lower shadow. This sort of a candle is exactly the opposite of a hammer and is known as a gravestone. Since, this is also a doji (a candle which has no body), this is known as a gravestone doji. Gravestones/gravestone dojis are, generally, formed when there is a short term reversal. Today’s downmove after a big gap up is not a good sign and does signify a reversal, unless the Dow surprises us by going up another 400 points today.

Yes, it is true. The short term uptrend, however short it might have been, seems to be over. We are looking at a retest of Monday’s lows at 4650, unless we, somehow, manage to close above 4800 tomorrow and bounce back from there. It has been regularly happening in the past few weeks (ever since the big Monday and Tuesday crash in January) that whenever the markets start crawling a bit higher, a small bad news comes and our markets go haywire. This is what happens in a bear market. Good news are temporary and have no effect on the markets. The Dow closing 400 points in the green yesterday was a big positive (especially when our markets were already climbing) and our markets did open a lot higher. Later in the day the IIP (Index of Industrial Production) numbers came out and the industrial growth was reported to have been only 5.3% compared to 11.6% reported last January and against analysts’ expectations of 7.7%. This is a significant slowdown in production and will, in turn, have an effect on the GDP growth also. And in such ‘shaky conditions’ such numbers were bound to have an effect on our markets.

There will come a time when all bad news will be discounted for. More bad news will not affect the markets any more and the markets will be driven by the cheap valuations of the stocks rather than by bad news. That will be the new beginning. But when will that time come? It could be soon (near 4600) or may take longer (near 4100) or even longer (near 3800/3500???). Only the market decides that. We do not. The markets are supreme. We are not. We just follow the markets. We sell and make money in bear markets and buy and make money in bull markets. Follow the market, respect the market and it will behave like your best friend. Go against it and you are, probably, not going to find a worse enemy.

I was reading an article in the newspaper a couple of days back and it said that most stocks are available at the same prices as the prices when the Sensex was at 12000. The fundamental situation of India, or ‘The India Story’ as it is usually called, is still intact, but may have worsened a wee bit. And if the prices at 12000 warranted a ‘strong buy’, the same stocks at the same levels today should be considered a ‘good buy’.

While, it is not advisable to buy in situations when the downside target is not known, yet there is one stock which caught my eye and I would like to discuss it with you.

Shown above is the weekly chart of Siemens and we can see that it has been respecting a trendline in force since Oct 2005. After a steep rise last year, it is now 'on its knees' to 'kiss' the trendline. It should be assumed that it will once again respect the trendline and turn back. Downside risk seems to be minimal. However, the overall market conditions should not be ignored. Chances are that if the Nifty goes below 4650, this also could fall further (and that could be just the beginning of a major fall). So, a strict stop loss of 600 should be maintained. With this stop loss, it seems to be an excellent investment buy right now.

As mentioned in earlier newsletters, we are inviting our esteemed readers to send in their contributions in the form of articles to be published on this page. Take this opportunity to voice your opinions to the world about the fall today, the markets in general or anything remotely connected to the markets. Please e-mail your articles and don’t forget to mention your name and location so that you are given due credit for the article that is published.

Happy investing!!!

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