Bulls At An Advantage

This article on moneycontrol gives the view of their Technical Analysis expert, Ashwani Gujral, who recommended Tata Steel with a target of 950 and Sterlite Industries with a target of 1070. These stocks were already recommended on this page with a target of 1050 and 1040 in the newsletters for 15th May 2008 and 30th April 2008 respectively.

The Nifty today opened with because of weak global cues but kept rising through the day to close the day slightly in the green. The Asian markets ended on a mixed note today with the Hang Seng closing green while Nikkei was in the red. European markets are now (at the time of writing the newsletter) more or less flat while the Dow is still losing 70 points after a loss of about 200 points yesterday.

Looking at the chart of the Nifty today, I find no difference in the chart since yesterday except that the support near today’s low at 5050 becomes a little stronger. So, I might as well copy and paste what I wrote here yesterday. In fact I’ll do better than that, I’ll just add a link to yesterday’s newsletter and you can click here to read what I wrote about the Nifty yesterday. We still have resistance near trendline 3 and trendline 2 and support near 5050 and then trendline 1. RSI has yet to cross 60 to give us bullish signs.

It is all becoming a little confusing now. We made a low of 1292.20 in the now infamous decline of May 2004 (when the BJP government fell) and a high on 8th Jan this year at 6357.10. The decline in mid Jan and then through February and March made is correct 38.2% of the move from May 2004 to Jan 2008. I think a 38.2% retracement in a secular bull market (what most market participants have been claiming to be in since the last 4-5 years and which is expected to last another 8-10 years) is quite enough. A decline deeper than this should not come about. We should probably just do some base building here (which, I personally think, is in progress now) and move on. But the signals from the western world and the investment gurus are not very positive. According to Eric Roseman, George Soros, the hedge fund manager of the Quantum Fund and one of the best investors, has gone on to say that investors are now participating in a bear market rally. Warren Buffett, nicknamed ‘The Sage of Omaha’, in this article, says that the end to the credit crunch is still not in sight and that the stocks could be heading still lower. I tend to agree with Haresh Soneji, CNBC TV 18’s Research Analyst, who says in this article, that investors the world over may be hoping that both Soros and Buffett are terribly wrong this time around but given their history, it seems unlikely. They may turn out to be right but one of the advantages of blogging is that I could disagree with them if I want to and I am disagreeing. I feel that we have already seen an intermediate term low and that we should not be going below that for a long time to come.

Hmm…., disagreeing with George Soros and Warren Buffett, what am I doing? In fact, it is a win win situation for me. If I go wrong, I’ll be expected to, because where do I stand as compared to Soros and Buffett, but the technical signals now do not show that the markets have anymore downside and I have Ashwani Gujral agreeing with me. And if I do turn out to be right, I can always turn around and say that I could foresee what George Soros and Warren Buffett could not. This is why I love blogging. I can never lose. I would appreciate your comments too on how you expect the markets to behave now because as I said, it is becoming a little confusing now and I would like to know what all of you are thinking.

Alstom Projects, with its Relative Strength Index (RSI) crossing 60 during its last peak and now finding support near 40 before turning back, seems to have given a good sign of turning around from the current levels. The stock may go up to its trendline near 720 from the current levels (which itself is a return of about 12-14%) and if it is able to cross the trendline then could continue to go up to a target of 950-1000. Buy now with a stop loss of 580 for a target of 720 and then between 950 and 1000.

Siemens seems to be getting support near 550 and 560 since a month now and with the downward sloping trendline coming so close, it is left with no option but to break out of the pattern. It now has to go above the trendline or may choose to come below the support. This is a perfect opportunity to buy it. If it goes up, it is in our favour and in case it comes down below the support, the stop loss is so close that we’ll hardly lose anything. Consider buying above 600 with a stop loss of 560 for a target of about 770.

Happy Investing!!!

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Markets Uncertain

A new feature has been introduced with effect from 3 Mar 2008. Now you can listen to an audio of all the posts written here. The link to the audio is at the end of this post. Click on ‘hear this post’ and a new window will open which will create an mp3 file and then read the post for you. Just make sure that your speakers/headphones are on. Now you can listen to the posts even in your car while driving to work, provided you have opened the page on your laptop. The biggest advantage is to people visiting the site from their mobile phones. They can just click the link to the audio and the post will be read out to you. Great, isn't it?

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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