This blog spot contains discussion and analysis of stocks and securities trading in NSE and BSE. All stocks are analysed on Technical charts and an effort has been made to predict the future movement of these stocks.
The Nifty came down as expected and found support at 5110, very close to our expectations of 5102, and reversed from there to close near 5150. The question to be asked now is – “Is that it?” or “Is the correction already over?”. Well, let us look at the 60 minutes chart of the Nifty below and try to analyse.
5102.25 happens to be a Fibonacci retracement level, which in most cases, provides a pretty accurate support/resistance to the stock. This need not be a 23.6% retracement always, but can be the 38.2% retracement or the 61.8% retracement but in most cases the reversal point is a Fibonacci ratio. So, the price reversing from close to the 23.6% retracement level suggests that it may be over. There is one more thing visible from the charts. The solid brown line happens to a trendline connecting three lows in the last one month. This line should provide support to the prices between 5090 and 5100. This level is likely to increase by roughly by 3-4 points every hour. So, hopefully, during the day tomorrow this line may be touched and Nifty may bounce back from there.
That is not the end of it. There is the Relative Strength Index (RSI) also, which touched 40 and then went back to 44 in the last hour. While it is difficult to say whether 40 will be tested again or not, but it seems likely that 40 will not be breached. This is a bullish sign and again signifies that we have already seen the end of the correction, or will see it tomorrow. So, as of now all things seem to be suggesting that we should be looking at our next target of 5441soon.
The Nifty has lost almost 200 points (190, to be precise) from its high, yet we feel as if correction has not taken place. There are two reasons for that. One, we have got used to bigger corrections, which may not come when we are in a bull market. Maybe these are the signs we need to look into at such times. Secondly, in the last 3-4 days there have been spikes for very short time both upwards and downwards. If we take only the closing prices then we are down only 100-120 points from the top. But is a 200 point correction big enough. It does not seem so and because we have got used to bigger corrections. But this 200 points is a full 23% decline from the last big rally, which is quite significant. We may think differently but the markets have a mind of their own. If they decide, it is over then IT IS OVER, no two ways about it. No stocks discussed today.
As expected, the Nifty did come below the upward sloping trendline and is now ready for a (hopefully, small) downmove. As discussed yesterday, the Relative Strength Index (RSI) of the Nifty has also now confirmed the bearish head and shoulders pattern. We can hope for the Nifty to cool down for sometime but upto what level that is a little difficult to say.
Hopefully, we can come to know about the possible levels with the help of the chart below, which is the 60 minutes chart of the Nifty. If we see the chart we can see that this upmove started on 18th March 2008 from a level of 4468.55 and the high was made yesterday at 5298. If we apply the Fibonacci Retracements to it, we can see that the 23.6% retracement is at 5102.25 and the 38.2% retracement at 4981.15. At the moment we are not looking at a move below this level, though, I feel 5100 should be a good level to bounce back from. Of course, conditions may change, circumstances may change.
Note: I still remember about my promise about writing more on Fibonacci in one of the weekend posts. Let me finish with my series on the Mutual Funds first and then I’ll do it. Maybe I’ll do a webinar on it.
No stocks being discussed today. Let us wait for the market retracement to finish and see where support is found.
Okay, and just before I sign off for the day, a small quiz for you. Do you know why we keep using the terms ‘Bulls’ and ‘Bears’ in the stock market? I found the answer at Digital Inspiration, which says that “According to Motley Fool, a bear market earned its name because bears tend to swat at things with their paws in a downward motion (as in "the market's going down"). A bull market, on the other hand, got its name because bulls swing their horns upward when they strike (as in "the market's going up").”
The Nifty, as expected, remained above our trendline on the 30 minutes chart. There are no signs of a downtrend coming right now except for a few areas of weakness seen on the charts. Ignoring the big blue bar, which was more because of global reasons than anything fundamental/technical, we can see that all other candles are finding resistance near the 5230 mark. It would, probably, need a very good push now to go past 5230.
The Relative Strength Index (RSI), though, still above 60 is also showing some signs of weakness. The Nifty opened in the morning to make a new high and remained above the trendline throughout the day (in spite of the negative news of inflation measuring 7.57%), yet the RSI has not been able to cross its earlier high of 78. This clearly shows that the strength of this upmove is reducing. Looking more closely at the RSI, if it were to go below 50, it would confirm a bearish head and shoulders pattern and the price, sooner or later, would have to follow suit.
If we take a look at the daily chart of the Nifty, here too, we find that there is a lot of resistance near 5300 and there may be some difficulty crossing it. If the price does decide to come down, we have a good support near 5100 too and, personally, I am not looking at the market going below 5100. As far as the RSI on the daily chart is concerned there seems to be no weakness of any sort visible as of now. All trendlines are intact, higher lows and higher highs continuing, no bearish divergence visible and the most definite sign of bullishness is that it is still above 60. Incidentally, the price is managing to trade above its 200 day simple moving average and in the event of the price coming down we have another support at this level of 5165. Keep stop losses below 5100 for long positions.
Financial Technologies has now broken through its downtrending trendline which was providing resistance near 1775. This breakout has been confirmed by the RSI with it crossing the barrier at 60 and signifies that it is now in the bullish territory. The volumes were not convincingly high but were the highest in the last 10 days. I would say it is good buy setup at current levels with a stop loss of 1700 for a target between 2400 and 2450. There might be some resistance near 2000 levels too.
GMR Infrastructure is still below its resistance line near 169. A buy signal has not come as yet but indications are that it may come tomorrow. We shall take the trade only if a buy signal does come about. That will come, if and, when the price is able to sustain above 172 after ignoring the movements of the first 30-45 minutes of the morning. If that happens the RSI would also be able to cross above 60 and the volumes have been remaining high since the last 3 days suggesting that a breakout may happen. Buy above 172 with a stop loss of 150 for a target of near 220.
Mahindra and Mahindra also has an interesting chart. It has not yet given a buy signal but would give if it were to go above 720. The risk to reward ratio for this trade is quite high and the reader should use her own discretion whether to take the trade or not. It was only on the basis of other auto stocks showing strength that I selected Mahindra and Mahindra. Buy above 720 with a stop loss of 640 for a target of 800. This means one would take a risk of Rs.80/- to get Rs.80/-, which is why I say that the risk to reward ratio is quite high.
Maruti Udyog seems to be a good buy above 800 with a stop below 720 for a target of near 1000. If it does cross 800, it would give a buy signal confirming the breakout from the downtrending line, the volumes already high giving an early signal of an impending breakout. The only thing that is not yet suggesting bullishness is the RSI being sub 60 but it is certainly moving in the right direction.
Last week I had written a post on mutual funds titled "Mutual Funds: What They Are?" Since that post had become very lengthy I had promised to add more to it. So, here I am.
Types of Mutual Funds
There are, essentially, and broadly, the following types of mutual funds:
1. Debt Funds 2. Equity Funds 3. Balanced Funds
Debt Funds: Debt Funds are those which invest a major portion of their corpus in government securities, bonds having varying durations, company fixed deposits and call and money markets. Between 90 to 95% of the total corpus is invested into such instruments. Since these are considered as safe instruments, therefore, the returns from such funds are also low but capital, in most cases, is protected, unless the investor stays invested in them for a very short period of time and there have been violent interest rate fluctuations in that period. One can expect a return of about 8-10% from such funds. One should stay invested in such funds for a minimum of 1 year for capital protection.
Equity Funds: Equity Funds invest a major portion (80% and above) in direct equities. Since the equity class is considered to be risky and returns are highly volatile, only those should invest who have the risk appetite to pass through volatile phases. There is a possibility that some investors may lose a part of their capital if they stay invested for a short period of time or if they invest in a bear market. To reap maximum benefits of an equity fund, one should plan to stay invested for a minimum of 4-5 years. One should expect a return of 18-20% from such funds.
Balanced Funds: As the name suggests, such funds invest about 50-60% of their total corpus in debt instruments and the remaining in equity instruments. This is done to reap advantages of both types of funds and to better the return as compared to debt funds and to reduce the risk which is there in classic equity funds. To lower the risk, one has to compromise on the returns, which are usually between 12-15% in such funds.
Loads
To run a Mutual Fund, there are costs and these costs are ultimately recovered from the investors in the form of loads. While most of the debt funds are no load funds, most equity funds have entry loads. In general, all equity funds charge an entry load of 2.25 to 2.5% while debt funds do not charge any. Both equity and debt funds are exit loaded on an early exit. While an equity fund charges 1% load on an exit within 6 months, a debt fund charges 0.5%. Debt funds are load free after 6 months whereas equity funds charge 0.5% if withdrawn between 6 and 12 months.
What Funds to Invest In?
Each investor has to see her own risk appetite. If you are the kind of person who would not like to take any risk whatsoever, then debt funds are the right choice. A person with a high risk appetite can go in for equity funds for higher returns while one can follow the ‘middle of the road’ approach by choosing balanced funds.
Equity funds come in different styles like thematic funds, sectoral funds, funds based on market capitalization etc. An investor should choose to invest a major portion of her portfolio in funds which are ‘evergreen’ like large cap funds or blue chip funds or well diversified funds. A part of the portfolio can go into other funds to take advantage of the ‘flavour of the season’. Keep your funds portfolio well diversified to reduce risk and get reasonable returns. Divide your money into 3-4 different funds but not so many that it becomes difficult to keep a track.
Today there are various funds like mid cap funds, small cap funds, power sector funds, media funds, banking funds, infrastructure funds and various others. All these concentrate on stocks of a particular sector or a particular capitalization and leave a lot to be desired from the power of diversification.
SIP is the Way to Go
Since timing the markets is a futile game (as one can never be right all the time), the best way to invest is to invest systematically. SIP is an acronym for Systematic Investment Plan. Under this plan, you set aside a particular amount (which could be as low as Rs.500/- with no upper limit) every month for investment in a fund. That amount is used by the fund to allot units to you based on the NAV of that day.
As an example, let us say you invest Rs.2000/- every month on the 15th. On 15th of last month, the NAV was Rs.20/- so you were allotted 100 units. On 15th of this month, with the improvement in the markets, the NAV increased to Rs.25/-, thus allotting you only 80 units. Then we witness a heavy crash and on 15th of next month the NAV falls to Rs.16/- which would then allot you 125 units. This means that you are buying lesser units when the price goes up and buying more when the price is low, thus decreasing the average price of holding. This way you acquire a total of 305 units for Rs.6000/- thus bringing your average to Rs.19.67/-. Alternatively, if you were buying 100 units each time, you would have spent Rs.6100/- and still bought only 300 units giving you an average cost of Rs.20.33 per unit. Thus, SIP helps you in bringing your average lower, which is also known as Rupee Cost Averaging.
Another advantage of SIPs is that you automatically save a small amount every month rather than a lumpsum every year. It will be easier for you to save Rs.5000/- every month rather than Rs.60000/- every year.
The markets opened with a small positive bias near the highs of the day but could not sustain those highs and it wasn’t very long before they started slipping down. They made some attempt to recover in the mid-afternoon but failed and closed at the lows of the day.
Above is the 30 minutes chart of the Nifty. As seen from the chart, it currently stands at support at the blue trendline, which has been providing support to the prices for the last fortnight. There is nothing bearish about the prices as of now. What is worrying is the bottom half of the chart. That is where the bearishness is visible. While the price has gone on to make a higher low, the Relative Strength Index (RSI) has actually gone below its previous low, which is giving a bearish signal. One must be careful at these levels as the markets can come down because of this bearish divergence between the price and the RSI.
There are two things that can happen now. Either the Nifty can decide to break the trendline by going below 5150 and come down to test its lower supports (marked by the dashed brown lines at 5080, 5020, 4995 and 4950). Or, alternatively, it may move between 5150 and 5180 for a better part of the day tomorrow so that the RSI cools down some more and comes between 40 and 50 and then go on to resume the uptrend. What it will finally decide to do, we’ll only come to know by seeing the price movement tomorrow morning. If the market does decide to go up and crosses its most recent high at 5230, then we are looking at a resistance near 5300.
Divis Labs seems to have made a bullish head and shoulders pattern on its daily chart. The only hitch seems to be that the right shoulder is not very well formed. But what is heartening is, is the fact that the breakout was confirmed with a big spurt in volumes. This seems to give us a small confirmation that the breakout (and the pattern) may not be false. Consider buying at current levels with a stop loss of 1360 for a target of between 1750 and 1800.
A similar pattern seems to have been made on this daily chart of Praj Industries. Likewise, it seems to be a good buy at current levels with a stop loss of 165 for a target of near 270. Just like the chart of Divis Labs, this chart too has confirmed the completion of the head and shoulders pattern with huge volumes.
Below is embedded a video seminar (webinar) which talks about trends, trendlines and moving averages. In case you like this webinar, and want more to come in the future, please click on the comments form below and leave your remarks
I must apologize for not posting anything on the site except for the webinar for the last two days. It was a busy few days for me since Saturday. Anyways, I am back now and, hopefully, should continue to be regular like always.
Yesterday and today morning was nervous for the markets. The RBI credit policy announcement was supposed to come out today and a major percentage of the market was expecting a hike in the repo rates to control the inflation. A hike in the repo rates would have been negative for the markets. Fortunately, the nervousness subsided and a thrusting upmove came about when the credit policy was announced and it was made public that only the CRR would see a hike of 25 basis points while the repo and reverse repo rates would be left untouched.
This upmove today was significant in the sense that it crossed the 200 day simple moving average (the green line) today. The 200 day moving average determines the trend in the long term. The price above the 200 day moving average indicates bullishness while it suggests bearishness of the prices are below it. This move should find some resistance near 5300 near the blue trendline, though, according to our earlier post, the target still remains 5441.
Cipla has broken through its upward sloping trendline with the Relative Strength Index (RSI) showing a stronger dip than the price. This may not be very good for this pharma stock. Consider closing long positions.
This is the weekly chart of Hero Honda. Now that this range has been broken, we can look at some nice upmove for this auto stock. Consider buying on a pullback to 800 with a stop loss of 725 for a target near 960.
Sterlite Industries seems to have broken through the line at which it was finding resistance. With a stop loss of 800, it seems to be a good buy at current levels for a target of near 1040.
Tata Motors, on its weekly charts, has been moving within a range of 600 and 840 for over a year now. Now that it is at the bottom of the range, it seems to be a good time to pick up this stock for a target between 800 and 840.
For all those lovers of Tata Power out there (I hope you are reading, Mr. GK), this seems to be a good time to pick up the stock (or hold it if already holding) when it has broken through its resistance line at 1360. With a stop loss of 1300, one can expect a target of near 1700.
Do you invest in mutual funds? If you do, you know what they are and what they can do for you. If you don’t know about them, it is high time you should. This post gives you from the most basic to the technical aspects of a mutual fund.
Who Needs Mutual Funds?
With the markets rising, as they have in the past four years, everybody wants to take advantage of the markets. There are two or three options available. The first one, but not the easiest, is that you get yourself registered with some broker, set aside some money for buying stocks and you’re on. But most people, with long working hours and stressful jobs do not have the time to monitor markets and that makes one lose a lot of opportunities.
Some people do not have the knowledge or the aptitude for stocks but still want to take advantage of it. The most convenient option for them is to give the money to a friend or an Uncle to invest on their behalf. But these friends or Uncles are sometimes scared to invest on your behalf because they don’t want to ride the guilt of you losing money if one of their decisions went wrong. Alternatively, even if they don’t feel scared or guilty and some of their decisions do go wrong, which inevitably will (because nobody is perfect), you won’t hold them in very high esteem.
The third option, and undebatably the best for such people, is to invest their money with a mutual fund. That way even if the mutual fund loses you money, the only loss of relationship you have is that you won’t invest money in that mutual fund anymore. As it is, you have a lot of other options available.
The third problem that usually comes is that you do not have enough money to properly diversify your portfolio and we all know the advantages of diversification to get good low risk returns. To properly diversify her portfolio, the investor would need to invest at least Rs.2-3 lakhs.
What Is A Mutual Fund?
Let us understand this with a very simple example. Suppose there are 10 investors, each with a capital of Rs.50,000/- to invest. None of them has a big enough capital to properly diversify their portfolio. So, they make a syndicate and invest jointly because then the combined portfolio of Rs.5 lakhs can be well diversified. But the problems that usually come with such a syndicate is that you can never trust the person completely who is in charge of all the funds. Secondly, you will always feel cheated or will always suspect the division of the profits, specially, if the investment amount of each investor is different.
So, they appoint a person who they all trust, and who has the knowledge of the markets and they pay him to invest on their behalf, and who divides the profits equally and fairly among all investors after deducting his own expenses for the time and the effort he has to put in. That, in a way, is a small mutual fund.
But Mutual Funds AMCs (Asset Management Companies) have thousands of investors and have crores of rupees to invest. That gives the fund manager control over his investments and can stay invested in stocks for a longer duration (assuming that not all investors will withdraw funds at the same time). The fund manager has a full research team backing him and he himself is knowledgeable about the markets and the AMC ensures that all profits are divided equally among all investors.
How Are The Profits Divided?
On each day, except Saturdays, Sundays and holidays, a Net Asset Value (NAV) is calculated which is nothing but the value of all the securities held by the mutual fund in its portfolio. Any investor who invests into a mutual fund is allotted units. The number of units to be allotted is calculated by dividing the amount invested by the NAV of that day. For example, if an investor is investing Rs.50,000/- in a mutual fund and the NAV on that day is Rs.150/- then she would be allotted 333.3333 units (50000/150). Unlike shares, where only whole numbers can be purchased, units can be allotted in decimals too.
Since the NAV is calculated on each day, any investor entering on any day can be allotted the exact number of units based on the value of the portfolio on that day. Similarly, any investor exiting on any day can be given the money as per the value of the portfolio on the day of exit. The amount to be paid to this investor is calculated by multiplying the NAV of that day with the number of units held by him. So, in the above example, if our investor decides to exit on a day when the NAV is Rs.200/-, she would be given a cheque of Rs.66,666/67- (333.33333 x 200), thus making a profit of Rs.16,666/67- in the transaction.
NAV Calculation
A very simple example of calculation of NAV. Suppose I have a mutual fund in which 100 people have invested (each investing Rs.10000/-), which gives me a total corpus of Rs.10 lakhs. I allot a total of 1 lakh units, each unit at Rs.10/-. Next day I go out into the market and buy shares worth Rs.9.5 lakhs and keep Rs.50000/- as cash. Suppose the value of the shares after 10 days is Rs.10 lakhs (which has since increased from Rs.9.5 lakhs). Now, the total value of my portfolio is Rs.10 lakhs in shares and Rs.50000/- in cash, thus making Rs.10.5 lakhs. Dividing this by 1 lakh (the total number of units issued) I get an NAV of Rs.10/50- per unit after 10 days.
There is a lot more to know about mutual funds but, I suppose, this post is going to become very lengthy if I delve any deeper into it. I will write another post about mutual funds in the days to come, which will talk about what types of mutual funds are there, what are the costs, what mutual funds to buy and some common mistakes people make when investing in mutual funds.
Update: This article was also published on the business and investing page of Reuters.
Today was again a flat day for the Nifty with a slight negative bias. No breakouts out of the range, just stayed within it but closed near the bottom of the range at 5000. As suggested yesterday, a move below 5000 could take the Nifty to a level of 4930-4940. There is another support at 4900 and the next one at 4830. We shall have to see which support the Nifty decides to respect, if at all it were to go below 5000. An upmove shall be productive only if it were to cross 5080.
But what I found interesting in this 30 minutes chart of the Nifty was that the Relative Strength Index (RSI) seems to be finding support at 40. This may be good for the market if it decides not to break down.
Today was also the F&O expiry day. That was expected to bring high volatility and choppiness into the market. But the kind of volatility that was expected did not come about. Maybe it was because of the low volumes and open interest this month which was caused by the nervousness in the markets.
As expected, our recommendations yesterday did not go right today because the broader market remained weak. That was what we had warned yesterday that though some buying signals were there, the reader has to use her own discretion whether to take the trade or not because we were expecting the broader market to come down.
No stocks being discussed today since the Nifty is showing signs of weakness and taking long positions now may hurt our financial health. We shall wait for the Nifty to give us a buy signal before taking any long positions.
As expected, the Nifty did go down today. During the day the Nifty did try to go up but could not go above yesterday’s close. It did manage to reach there but turned down again to close near the lows of the day.
Today we have the 30 minutes chart of Nifty with us. In the last 3 days we have seen that the Nifty has remained within a very narrow range. It may be consolidating within the range. What will happen after the consolidation is over is anybody’s guess. It has support between 5000 and 5010 and resistance between 5070 and 5075. This gives us a total range of 75 points. Once the Nifty decides to move outside this range then it gives us a target of another 75 points in the direction of the breakout. Of course, these targets can easily be overshot too depending on the momentum.
Let us look at the pros and cons of this range. The pros first. The Nifty had gone up about 450 points in the current rally, on the daily charts, without any meaningful correction. A correction/consolidation is healthy for the market. We want the Nifty to consolidate and catch up its breath before it starts running again. We don’t want it to keep running, become breathless and then collapse. So in that regard this consolidation will be good for the market and the results will be known once the Nifty crosses 5080.
And the cons? The latest rally, which was today’s rally, failed to reach its earlier highs near 5070-5080 and that signifies that there is weakness in the markets at higher levels. Another interesting observation on the charts is that it has made a small bearish/inverted head and shoulders pattern within this range. This pattern, though, has not been confirmed yet. A break below 5000 will confirm this pattern. The target for this bearish head and shoulders pattern will be about 4940. At this point, there seem to be more negatives than positives in the short term.
There are a few charts which are giving buy signals and have been discussed below. But one’s own discretion is required because we are expecting the broader market to come down a little. Please note that some of these stocks may be available at a cheaper rate in a day or two but the buying signals remain valid till the stop loss level is hit.
Aditya Birla Nuvo is showing some signs of improvement, as can be seen from this daily chart. What looks positive for the stock is the support for the Relative Strength Index (RSI) near 40, as marked by the circle. A move above 1500, which may or may not come tomorrow, should be positive for this textiles stock. A stop loss of 1375 will be prudent while waiting for a target of close to 1700, where it will meet the resistance line.
Arvind Mills, on the daily charts, has broken through its resistance line accompanied by huge volumes. This is bullish for the stock. The RSI is close to 80 and it is generally advised to wait for a pullback before buying. But seeing the chart, we can see that Arvind Mills has closed near the highs of the day without showing any signs of a pullback. Under these circumstances, it can be bought at the current levels with a stop below 50 for a target of between 65 and 67.
Hindustan Constructions has been moving within a narrow range between 110 and 140 since the last month and a half. It is now near the top of the range and may break out of this range. If it does it gives us a target of close to 170. A stop loss below 125 may be safe. But this stock should be bought only if it were to go above 140. Ignore the movements in the first 30 minutes as they are subject to volatile movements more because of global cues than because of technical or fundamental reasons.
Another very interesting chart of Jindal Steel. As can be seen from the chart, the price has been making lower highs while the RSI has been making highs at almost the same level, if not higher. This is known as a bullish/positive divergence when the price is going down but the RSI is going up. Now it is close to its resistance near 2300 after a pattern which looks like a double bottom formation. Not only that the RSI which was finding resistance near the line has broken through it which gives an indication that maybe the price will follow. Buy only if it crosses above 2300 with a stop loss of 2100 for a target somewhere close to 2750.
Petronet LNG has been in a narrow range between 60 and 80 for a better part of this calendar year. It now seems to have broken out of the range, while the volumes, though increasing, remain significantly low. Not the kind of volumes one would expect to see with a breakout. So, one can take a risk using her own discretion to buy near current levels with a stop loss near 74 for a target of near 100.
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.
