Feb
08Market Participants on Chopping Table
Filed Under (Market Observations) by Deepak Singh on 08-02-2010
Long term investors are calling this correction a great opportunity to BUY LOW and SELL HIGH. On other hand, traders are screaming to SELL every rally and their mantra is SELL HIGH and BUY LOWER. We are in for a choppy ride till market conclusively makes up its mind. At this point of time be ready for wild choppy moves till Nifty breaks 200 dma or climb past 100 dma.
Market Observations
- Liquidity first creates pressure on Valuations and then on fundamentals. As liquidity gets tighter, the stocks become less expensive.
- Fairly Valued? - The market is now trading at 15 times FY11 earnings - assuming there will be no damage to FY11 earnings because of liquidity issues.
- Risk Tolerance - Where is it?
- When risk aversion strikes, markets are rarely very fundamentally driven for a period. Instead, consensus longs go down and consensus shorts rally. This time is no exception….Citigroup.
- How long the correction will last?: As long as USD index trades above 200 dma; and correction may only accelerate above 81.5.
- What best bulls can hope for - Sideways market.
- News flow may dry out considering - Earnings are behind us, globally there is not much economic news flow expected and Chinese New Year will begin this weekend.
- In absence of news flow, it is the technical structure that drives the market. Does bullish hammer on S&P 500 = short term bottom?
- What will traders inclination be now - buy the dips or sell into rallies.
- The trading rule says - One should sell into rallies when markets trade below 50 dma and has not bounced from support.
- Nifty has yet to touch 200 dma i.e. 4651. On friday, Nifty made a low of 4692.
- Month to date - Nifty is down 2.5%. This has come after 6% decline in January. Is market oversold now?.
- On Friday, FIIs net sold 1726 crores worth of stocks in cash market whereas DIIs net bought 1168 crores worth of stocks in cash market. Saturday was nothing kind of day from institutional perspective.
- The technical issue: Most of the frontline stocks be it Reliance, SBI, L&T, HDFC, Bharti and ONGC - all are trading below 200 dma. There are 18 Nifty stocks trading below 200 dma
- The good news: there are still 32 stocks trading above 200 dma
- Fundamentally speaking - the sector that should be on avoid list - Metals. Global Headwinds are too strong for the sector. BSE Metal index has slipped below 100 dma
- Dabur - Nomura believes that company has very strong earnings outlook; and the turnaround in consumption is quite visible. Price Target = 193 on the stock. It’s no surprise Dabur is trading at highs of the year.
- Sun Pharma: The stock may find it difficult to outperform as long as Taro acquisition drama continues. The stock may witness more selling pressure if it slips below 100 dma of 1427
- United Breweries: The stock was up 17% last week. This is outstanding move considering the state of the market. On daily chart, the stock appears set for target of 200 as long as it holds 170 [Click on the image to see a large view]
- Fundamentally, Finolex Cables is avoid. The company is showing strong sales growth but their earnings may remain under pressure till FY12 because of forex losses.
- Inox Leisure: It seems some fun and games are happening on the counter - weird price and volume movements
- There is always bull market somewhere. Right now, it is in the Gas based stocks - Gujarat Gas and Indraprastha Gas - both are trading at 52 week high.
- Cairn Energy - a pure play on Crude Oil prices - is trading at 200 dma. Will the stock find institutional support?
- One message which long term investors are giving right now - Buy Low and Sell High
- We must trade the market we see not the market we want to see
Source: Stockcharts [www.stockcharts.com]
Source: Stockcharts [www.stockcharts.com]
Source: ChartAlert
Source: ChartAlert [www.chartalert.com]
Source: ChartAlert [www.chartalert.com]
Source: ChartAlert [www.chartalert.com]
Source: ChartAlert [www.chartalert.com]
Source: ChartAlert [www.chartalert.com]
Please share your comments on what you think of market observations, market and trading in general 
Disclaimer - The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers
Deepak,
sorry I missed u on the NDTV profit …..
By the way, thanks for some of the stock observation. I have been noticing the strength in Dabur - being a long term buy hold and almost forget kind of investor in that script - and now this input helps.
Similarly, was wondering why Finolex Cable has been falling off after the good climb and wondering if that was just a correction - and again your input helps to make up my mind …
Thanks , hope someday we can meet - being in the same city makes it tempting for me — but of course I am really a very very very small fry. ….
Deepak,
My opinion is that this is indeed the time to think investing for the long term. Take For example LT or Bharti or Reliance - clearly the technical charts are breaking down or on the verge of breaking down. Which means that price are likely to go further down. BUT you never know how much or when it will stop going down as catching the top and bottom is just not possible.
So e.g for LT. it is down to 1400 from 1700 - a nearly 20% drop from the top and likely to go down further. So, I allocate money in 4 steps. If I have 40K to put in LT for investment, I will put in 10K now and keep the rest. Every time LT goes down another 10-15% - meaning it reaches 1260, 1120, etc, I will buy another 10K. This is essentially SIP at the stock level with the additional discipline of waiting to buy only after significant price erosion. I believe this combines the best of value investing with some technical insight.
Of course you must not follow this method for unknown midcap and small cap as they can go down to zero which is unlikely for LT and reliance.
And then u wait two to three years to reap a 50-100% profit - not a bad risk reward ration for large caps.
Sorry for the long message . Please critique it if something is obviously wrong with it .. Hope it helps someone else ….
One of the reason for FII sell off is the margin call triggered due to the dollar carry trade.