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An analysis of some stocks requested by readers:
IFCI: This stock has seen a huge run up over the last few months. The 52Wk low is 7.73 and we currenty stand at 56, which is almost an 800% gain. The stock is moving out from a late stage base. As a result of this we don't see too much upside in this. The stock is also now trading at it's lifetime high(set in 1997). We would suggest disposing of this stock in spikes to 57, though we might see 58-59 levels. However considering that the trade is done using calls, the time decay will negate any gains made. We would advise a SELL and definitely not a buy on declines.
GLENMARK: This stock is moving in a falling channel. Though it might break out of this channel, we don't see too much upside. We advise a SELL at CMP or 665.
KIRLOSKAR OIL: The stock made a 52Wk high on Friday. It might react a bit over the next few days but some upside to 340-350 can be expected.
BALRAMPUR CHINI: The stock is moving in a rising channel. Currently at 76.30, we can expect the stock to hit 85 and we advise a sell at that price.
Stock Followup:
UNIP: We recommended this stock but we did not enter into this trade. It was recommended at 310 and it still stands at 310. Our earlier target of 360-370 still holds.
We initiated a short position in AKS at 37.60. We have put in another short order at 37.75. In this short we are looking at slightly longer period than our other short trades over the last few weeks.
The second order has also been executed. With this our average price is 37.66
We said 'The Indices are now trading between the 20EMA and the 50EMA.' And today too the Index bounced from the lower 50EMA and got capped at the 20EMA. The falling trendline also acted as the resistance to the upmove today. As you can recall, we covered all short positions yesterday. Accordingly the stocks that we track as good short candidates , opened badly and from then went on to close the day in the green, and in some cases up 3-4%. However the bearish stance on US markets continue. We will wait patiently on the sidelines to initiate new shorts. Key technical indicators will be - doji/hangman and long upper shadows.
India:
The good move on the US markets provide us with a good chance to break the falling channel that we have been talking abt. Though we closed in the red, our key level of 14300 was not broken. The falling channel will be convincingly broken at 14600. We will have a relook at new targets if the falling channel is broken.
Another day and the same story. The market were up 100 points at one time before closing in the red. The falling trendline is still acting as resistance. The Indices are now trading between the 20EMA and the 50EMA. Will these 2 create a channel for volatility compression? Our bearish stance on US markets continues.
India:
The question is - Will the US markets hold enough long enough for the mega IPOs to list? Yesterday, interestingly, we managed to move slightly above the falling channel before settling back below it. Our stand continues - watch whether 14300 holds OR we cross the falling channel convincingly. Our preferred view is that we will take support around 14300 - 14400 and cross the falling channel. However if the market lets us know otherwise, we will have to change.
Buzzword: Watch 14300.
We picked up this stock as a short candidate as a contrarian pick from one of the message boards. This was spoken of as a hot stock and we decided to analyze it. And needless to say, it looks like a good short candidate. Note the following divergences marked on the chart:
- RSI divergence.
- MACD divergence, though this indicates a potential danger as well. We will monitor this and weakness will be used to add fresh shorts.
We had an
initial short term short position at 37.57, which we
covered at 36.20. We target it to be around 35 at the 20EMA. However at this point we hold no positions.
A good price to initiate a fresh short is at 37.5.
We covered our yesterday's short of AKS today at 36.20. Our net gain on this is 3.65%. We still some weakness in this stock but for now we will wait on the sidelines to build the next position.
A roller coaster day for the US markets. Up almost 130 points at one time, they then plunged and took support at the 50EMA and eventually closed 8 points down. This is a very bearish sign. Accordingly we have closed our longs and added a short term short position. The only way to be sure that the trend hasn't changed is for the market to close above the trendline that is marked on the chart.
India:
As we mentioned yesterday, things can move either way. However, given the bleak situation in the US markets, we remain extremely cautious. We share below a chart that was first shown by Vivek Patil that shows the formation of falling channel. We will issue stock specific sell calls in a seperate post. Unless the markets show otherwise, ie, breach of the falling channel, on the upside, at approx 14550 or takes support at 14300, we will assume the worst. We will reenter positions once any of those conditions mentioned are achieved.
We sold AKS short at a price of 37.57. This is the initial entry and based on the price behaviour we will add onto this position.
We sold ATHR at 30.59.We had bought this at 30.49 and our gain works out to a measly 0.33%. With this we are out of all long positions in US. We will initiate short positions slowly.
The US markets took a tumble on Friday with the DOW down 1.37%, the NAZ 1.09% and the S&P500 down 1.29%. More importantly it broke the crucial support at 13400.
The coming week and especially Monday and Tuesday will remain crucial. The 50EMA stands at 13291 and that will remain as the next support. Whether this will hold or not will decide what happens next. Given these uncertainities, we choose to err on the side of caution. Therefore we don't advocate a buy on decline strategy.
We might have a mid session market update depending on any adverse market action.
The Nikkei is holding out well. The HSI has broken onto 52 week highs and that is encouraging as we feel the Sensex lags the HSI by a few weeks.
India:
We closed the day sligthly in the red. The adverse reaction in the DOW might suggest some impact on our markets today. However the support we have marked is at 14300. If this fails the next support is 14000. This brings out 2 scenarios. If the 14300 support holds we will go onto make new highs. However if support is found at 14000, we will not make new highs and use the pullback rally to exit our longs.
Looking ahead, if 14300 is held and we go onto make new highs, the ensuing Wave C will target 12350. However if Wave C starts without making new highs, the target will be 12800.
Our preferred scenario is we go onto make new highs and we feel this is supported by the fact of the listing of the mega IPO(DLF) and FPO(ICICI) over the next few days.
We came across this article on Yahoo! Finance - Seven Money Mistakes to Avoid. Let's review this article. Our comments are in Red:
1. Saving with the right hand and spending with the left
DIAGNOSIS: Mental accounting
SYMPTOMS: Keeping a savings account that pays 5% interest while paying Visa 15%; thinking a tax refund equals mad money; obsessing over the price of a new car, but failing to monitor the weekly grocery bill.
We agree to this point to some extent. However when it comes to the grocery bill, I think that's stretching the point a bit too much. Most people are penny wise and pound foolish. They will cut coupons, go 15 miles to save 50 cents. However when it comes to the big ticket expenses, they overlook them. We believe in the opposite concept - penny foolish and pound wise.
2. Playing it too safe
DIAGNOSIS: Loss aversion
SYMPTOMS: Quick to sell winning stocks but slow to sell losing ones; putting too much cash in money-market funds and not enough in stocks; reluctance to trade away what you already have, even for something more valuable.
This is one of the biggest mistakes that people make. As we have repeatedly said - everybody needs to invest. But what we have seen is people view investments only from a 'tax-saving' aspect or to buy a house and refuse to explore beyond this. You really need to be investing in different areas than the 2 mentioned above.
3. Looking into a cloudy crystal ball
DIAGNOSIS: Misunderstanding risk
SYMPTOMS: Putting too much of your savings in your company's stock; having very low insurance deductibles; thinking small-cap stocks will rise forever.
Most people don't understand risk at all. This is also a very neglected aspect in everyday life.
4. Living in the moment
DIAGNOSIS: Procrastination
SYMPTOMS: Failing to enroll in a 401(k) plan; not coming up with a monthly budget; waiting until the last minute to make your IRA contribution.
We think that this point is also a bit of an exaggeration. We believe that the monthly budget, etc is too highly focussed by most financial columnists. Remember that a budget has only 1 use - to make sure that you have the requisite amount of money left for investing. What people tend to do is get so focussed on the budget that they fail to concentrate on building their investment skills. The budget becomes a be all and end all which is not the actual purpose of the budget.
5. Throwing good money after bad
DIAGNOSIS: Sunk-cost effect
SYMPTOMS: Hanging on to a lagging mutual fund because you paid an upfront sales charge; making repairs that cost more than your car is worth; making decisions about how to spend time or money based on how much time and money you've already spent.
Yes, we agree with this. This goes in line with the GOLDEN rule of trading - cut your losses short
6. Letting your ego get in the way
DIAGNOSIS: Overconfidence
SYMPTOMS: Frequent trading; concentrating picks among a handful of "surefire winners"; thinking you're an above-average driver.
We disagree with this. You need to be constantly monitoring your investments. At the very outset, you might lag the benchmark indices but over a period of time you will gradually improve and be able to beat the benchmark indices hollow. Remember you can make money when the indices are going down by moving onto the short side. This is again the beef we have with most financial columns. They look at the market as a one-way, up street. Nobody ever mentions abt going on the short side.
7. Following the crowd
DIAGNOSIS: Herding
SYMPTOMS: Buying ethanol stocks because everyone says they're the next big thing; dumping your stock fund after a steep market decline; taking stock tips from family and friends.
We agree on some points and disagree on others. We disagree when the trend has changed, you better follow the crowd and get out of your long positions. The age old saying is very apt here - the markets can remain irrational longer than you can remain solvent. However where we agree is that you need to get back in the market once the trend changes and the markets start moving up. In fact we believe that buys made during this period turn out the most profitable.
