NEWSLETTER

HIGH ALERT--------------------->

IF NIFTY SPOT DO NOT CROSS 3222 AND SENSEX-10885 THEN.....

Ready for a Another big correction up to 2253 to 1309( Nifty) and SENSEX - 7697 to 4590.

Sensex Technical View :
Sensex has been the only index globally which has not given a sharp bounce it seems.

Certain technical points which are important:
1) In the last few corrections since January the falls have lasted for almost 48-52 sessions or say roughly 11-13 weeks. 21k -14.7k , 17.7k to 12.5k . Although the current fall has been much larger in magnitude around 50 % this time around to previous 30 % ones.

2) In the previous corrections we have seen a bounce of around 23-25 %. So in that sense we can see a bounce to minimum of 9500-9700. As the fall has been steeper can we see a much sharper pullback beyond 9700 .

3) Fibonacci Retracements for the fall are placed at 9550/10700 /11650 /12500 which correspond to 23.6/38.2/50/61.8 retracements. Ideally a bear rally bounce can target around 38/50 % .

4) There are some gaps left on the upside. 9570-9681 , 11257-11410 , 12284 -12472. So these gaps can get filled in the future but when is a big question as all are placed much higher from current.

So currently as the index is oversold the bounce back could be sharp also which could target 9500-9700 and to an extent 10500-10700 in a more sharper case in the next few weeks. On the lower side 8500-8700 zone could be the support.


Stocks to watchout for :
BOI , SBI , Glenmark remain good safe bets for medium term .

Long term high risk high return investments which can be bought in systematic investment manner.

Infra :
Reliance Infra , JP associates , HCC , Patel Engineering.

Metals :
Tata Steel , Hindalco , Sterlite

Refinery :
Chennai Petro , RPL , MRPL

As the above stocks have fallen steeply and may continue to remain sideways or drift lower also in medium term but in 6 mths -1 yr + should start looking up and give returns.

Systematic Investment Methodology :

I think this is where lot of investors dont give enough thought or are haphazard in their methodology.

Some of the mistakes :

1) Allocation of money :
There is no fixed allocation for a particular stock or sector and in many case not on the entire portfolio. So dividing into systematic investment amounts itself has no structure.

2) Amount not Shares
The essence of systematic investments is to get exposure in a good stock or business regularly and a good average price. Many of the investors do have exposures to SIP mutual funds and do know the logic of puttin x amount every month on every date. They also know the amount of time period they are going to do the same.

But suddenly in stock investment the whole thing goes a little different. Investors start counting in terms of no of shares!!! .

Lets take an example if one wants to buy glenmark for long term say 6 mths - 1yr . First thing to decide would be the amount to be allocated and next the period of accumulation and then slowly buy on dips in a fixed amount say 160k . Say 100 at 400 , 133 at 300 , 160 at 250 , 142 at 280 ( lot of say 40k ) .

There are more strategies to work it out ... Will be putting some in the coming week in details.

Nifty will be very weak if breaks 2680 levels, may see 2624-2585.

if sustains above 2710, could go on to hit 2805 levels.

will again be very volatile today, so trade with strict SL, and keep booking small profits.

closing above 2745 will be very good for the market in comming week, and closing below 2680, may show some weakness.

The level of 2740 still showing crucial trend

After a break of one day, market will resume today.It was a volatile day on wednesday with nifty feeling pressure at higher levels and the trend is expected to continue today also.On global front, The Dow Jones industrial average went up nearly 190 points with less volatility after the Commerce Department's report that GDP fell at an annual rate of 0.3 percent during the third quarter -- its worst showing in seven years. Analysts expected a 0.5 percent decline in GDP, the broadest measure of economic growth or contraction, but while the report was better than expected, it still pointed to an economy that is shrinking.The new report said Americans' disposable income fell at an annual rate of 8.7 percent in the quarter, the largest in records dating back to 1947 and the worst still doesn't seem to be over yet.A collapse of the housing market and locked-up lending have produced the worst financial crisis to hit the country in more than 70 years.To cushion the fallout, the Fed slashed interest rates on Wednesday by half a percentage point to 1 percent, a level seen only once before in the last half century.The Dow Jones industrial average rose 189.73 to close at 9,180.69.On Thursday, the dollar was mixed against other major currencies, while gold prices fell.Light, sweet crude fell $1.54 to settle at $65.96 per barrel on the New York Mercantile Exchange.In indian market today, nifty is facing continuous pressure around 2740 as mentioned on wednesdaya nd todya also 2740 will be crucial trend and if nifty stays above that, then it will move to 2800 and if fails to cross 2740 on higher side, it will go down to test 2620 great supporta nd break wil take to 2575.Overall interesting weekend.

Nifty :: As per our last post Sensex bounce beck from lower level and Nifty exactly bounce beck from last strong long term support 2250.. Last candle made long legged doji with body gap up pattern, an bullish sign.. As far as Nifty stay above 2450 nothing to worry.. Watch strong support 2650/2630.. Above 2737 momentum turn strong. 2737 an important level for up move.. Our strategy for 31^st Oct. above 2737, Buy on deep S.L (2630) sell at high.. Resistance for up move at 2737/2753/2823/2866/3005.. Supports 2650/2630/2580/2518/2450..

US Federal Reserve cut key interest rate to 1% while Indian companies prepared plans to lay off 25% of work force in the next 10 days. Economic fundamentals and consumer confidence levels are worsening across the world and China and India are heading for serious economic slowdown. We need to bear extreme pain for some more months. Huge job layoffs will occur in both India and China as US-dependant export companies will cut work force by 30-40% in the next 2 months. RBI will soon cut either CRR or Repo rate but what will companies in oversupply sectors (Real estate, Steel and Cement) do with that liquidity in a slowing economy.

Inflation: It will touch single digit in November due to falling commodity prices and decrease in consumption (demand). Inflation will fall to below 11% level after 5 months.

Worrying statistics:

1. India: 25-30% of people will lose jobs in the next 10 days in India in sectors like Technology, Finance and Construction- ASSOCHAM. As I wrote in previous posts, these job losses will have severe impact on Indian economy and the banking system. Neither people or nor Government are prepared enough to tackle this huge upcoming crisis. I wrote that these job losses will occur in late December-January but current layoffs are indicating the speed of economic crisis and depth of the credit crisis is much more than what we are expecting.

Sectors that will be severely impacted: Banking, Airlines, Real Estate, Steel, Cement, Auto, Hotels, Retail, IT- BPO, Manufacturing and new hires in all sectors.

2. USA: Consumer confidence fell to lowest level in 40 years (lowest reading on record) due to big slump in housing prices and fall in stock markets. Americans believe that economy will worsen further. This psychological feeling will have huge impact on stock markets and consumer spending.

3. Guangdong province, China: 70,000 Hong Kong-owned manufacturers employ 10 million people at this export region. According to Hong Kong federation of industry, 25% of these companies will be out of business in the next 6 months. Just imagine the impact of these job losses on China economy.

4. Baltic Dry Index: The global benchmark for freight rates of dry bulk carriers dropped to 6-year low that may force ship owners to keep a fifth of their global fleet idle.

5. USA: 10 lakh Americans lost their jobs since January, 2008. Delta bought Northwest Airlines. These mergers will result in further layoffs.

6. Germany: Volkswagen shares lost 50% of value in a single day. Hedge funds lost £13bn in two days of trading in Volkswagen (VW) shares. Shocking!

7. Sweden: Parliament approved $200 billion bailout plan.

8. Britain: Prime minister requested China and Gulf countries to form a big bailout fund to save countries suffering from economic crisis. Changing scenario!

Interest rate cuts:

1. Federal Reserve cut key interest rate to 1% from 1.5%. US interest rates are now at lowest levels in 5 years. What will Federal do if economy worsens further?

2. China cut interest rates for third time in 2 months. Unlike RBI, China is taking aggressive measures to escape from severe economic crisis due to drastic fall in exports and real estate prices.

Positive economic news:

1. Merrill Lynch Cut 2008 Crude oil price forecast to $78 a barrel from $107 per barrel.

2. Suzlon is in talks with PE players to divest 5-8% stake for Rs 800-1,000 crore.

3. Telenor of Norway bought 60% stake in Unitech Wireless for Rs 6,120 crore.

4. Inflation will touch single digit by November end – ICRA.

5. Dollar posted biggest single day fall in 23 years.

Negative financial news:

1. Don’t expect oil price cuts for some days – Petroleum Ministry.

2. Huge drop in rail container business volumes in September and October. India is heading for a drastic slowdown but authorities are not recognising the seriousness of the problem.

3. Goldman Sachs will remove 10% of workforce in India.

Recession news:

1. Venezuela and Gulf countries: Oil dependant economies are feeling heat due to falling prices and declining demand.

2. USA: Banking industry fears about upcoming credit card crisis. Banks already lost $21 billion in 2008 and will lose another $50 billion due to credit card defaults. Credit dependant American economy will take 18-24 months to recover from these waves of crisis.

3. Australia: Country is heading for first official recession in 18 years. Interest rate cuts failed to yield desired results.

4. Japan: Sony reported 72% fall in net profit while Toshiba announced 99% fall in net profit.

Quarterly results analysis:

1. Divi’s Laboratories:

Excellent results as expected. Hyderabad based CRAMS company reported 37% rise in sales and 51% increase in net profit. Divis Labs is a must have stock in every “Growth investor portfolio”. Divi’s is a favourite stock of Reliance mutual funds. Accumulate on every fall without hesitation for long term gains.

CMP: 975; P/E: 15.5

2. Everonn Systems India:

Excellent results and reasonable valuations. Company announced 50% rise in sales and 200% increase in net profit. This stock will give excellent results for long term investors. Buy in SIP and maximize profits. But FIIs may spoil the sentiment over short term. Pick your favourite education stock among Educomp, Everonn and Core Projects.

CMP: 157; P/E: 12

3. Bannari Amman Sugars:

Turnaround story. South India based sugar company reported Rs 30 crore profit in Q2 2008 Vs net loss of 1.24 crore in Q2 2007. Excellent performance. Bannari Amman spinning mills also announced good results in this quarter.

CMP: 450; P/E: 7.5; Book value: 393.

4. Mahindra and Mahindra: Expected negative results. Company announced 11% increase in sales but 20% fall in net profit. But scrip has excellent future potential for long term investors due to recent acquisitions by aggressive management. Accumulate around 250. Forex losses dented margins.

CMP: 302.

5. Vakrangee Software: Good results and good opportunities due to election year. I generally do not recommend software stocks but this is a “stock in limelight” before every major election. Company reported 62% increase in sales and 50% rise in net profit.


6. GMR Infrastructure:

Excellent results but unreasonable valuations. Infrastructure giant announced 158% increase in sales and 170% rise in net profit. One can accumulate this stock from below 40 levels. Bear market may not bear such high valuations despite good growth. GMR Infra is a “must buy” for growth investors at around 35. Will it touch those levels?

CMP: 52; P/E: 91; Book value: 31.

7. Bharti Shipyard:

Positive surprise. Company reported 48% rise in sales while net profit increased by 29%. Shipping industry is facing many problems due to drastic slowdown in International economy. Huge order book is a positive point. Value investors may look at this stock due to very cheap valuations. Huge debt is a concern. Shipping companies will face serious problems over short-medium term as Baltic index touched 6-year low.

CMP: 68; P/E: 1.5; Book value: 208.

8. TIL (Tractors India Limited): Good performance. Company reported 49% increase in both sales and net profit.

9. Gujarat Fluorochemicals: Safe business and excellent results. Company reported 57% rise in sales and 45% increase in net profit. Huge debt is a big burden.

CMP: 73; P/E: 2.3; Book value: 86.

Decent results:

Britannia Industries (safe stock), National Fertilizer, Assam Company, Karur Vysya Bank, S. Kumars Nationwide, Blue Bird (India), Fortis Healthcare, Bannari Amman Spinning Mills, Tata tea, Adhunik Metaliks and Areva T and D.

Poor results:

Sical Logistics (worst), Numeric Power Systems (worst), Value Industries, Alok industries, Aksh Optifibre, Bal Pharma, Sundaram Finance, Consolidated Construction, Subex, 3M India, V-Guard Industries, Zenith Computers, Piramal Glass, RPG Cables, Bombay Dyeing, Bosch Chassis Systems India and Pritish Nandy Communications.

Must read:

1. Are stocks really cheap? Don’t follow Warren Buffett. This is not the time to buy many blue chips.

2. Get a ringside view on American economy and economic crisis.

3. Is it wrong to invest for long term?

Final verdict: Overconfident short term investors and traders will get severe shocks in the coming days. DIIs may not succeed to meet FII outflows but falling inflation and crude oil prices are big positives. Job losses will spoil the consumption outlook which will increase NPAs in the banking system. Complete mess-up! New investors should not even look at stock markets in these unpredictable times. Long term investors should concentrate on companies which are posting outstanding results and accumulate them on every major fall.

Note: This blog is not meant for those readers who want stock tips to make quick gains. I am maintaining this blog to enable readers to take wise decisions by providing them with all the required information. Readers should do hardwork on research and try to learn from their past mistakes. It is impossible to make 100% correct decisions in stock markets.

******Trading system for NIFTY
Ø 3d LMA- 2470, 3d HMA- 2687.
3d SMA- 2635, 8d SMA- 2857, 34d SMA- 3619.
Ø ~BIAS – positive, MOMENTUM – negative, TREND – negative.
Ø STRATEGY-
*New call- No new call generated.
*Open position- close shorts as bias turned positive.
Ø STOPLOSS-
*for shorts--- stopprd out.
*for longs---2470.

***Fund flow (October 27)
~FIIs net in Index fut. + 482 cr, FIIs net in Stock Fut. + 285 cr
~FIIs in Cash Market - 1011 cr, Mut Funds in Cash Market + 503 cr
***total fund flow + 259 cr today & nifty was down by 60 points.

***Fund flow (October 28)
~FIIs net in Index fut. + 309 cr, FIIs net in Stock Fut. + 65 cr
~FIIs in Cash Market - 0 cr, Mut Funds in Cash Market + 15 cr
***total fund flow + 389 cr today & nifty was up by 160 points.

Nifty has entered short term resistance zone with overbought indicators..If world markets are buoyant by Friday, it can go higher to the next resistance zone of 2850 - 2900 and corrects..or falls.. See the tech table for appropriate levels..

EW: if crosses 2917, downtrend over or one more fall likely.
TA:Still not closed above the 5 DEMA & the short term is getting overbought.

Conclusion: 500 points Bull Move will be put to test in the coming days...