The Bull Market is Over - What's Next?

Curiosity  Trading Opportunity

Live markets can only be understood backwards, but it must be lived (traded) forwards

Guest Post by Deepak Singh

Plain Vanilla Bull market is over...and now everyone is concerned - What next?

To exploit this curiosity - There is a new Television program on CNBC called HUNT for the Bottom. The best minds on market are going to share their opinion and help Indian public at large on what should they do - Get scared by Shankar Sharma or Get overly bullish by Sameer Arora or Get confused. Now, first thing first - the rationale behind that program is not to discover - where is the bottom? Because nobody knows where the bottom is. The objective - Generate huge viewership interest because there is a natural human tendency to look for relief in times of uncertainty.

But does this all matter. After few years of trading and making and losing money - Here are my learnings -

You cannot predict the market - The financial markets are generally unpredictable. So that one has to have different scenarios...The idea that you can actually predict what's going to happen contradicts my way of looking at the market...George Soros.

You have no control on market. So, why think what the market is going to do. It is much better to think what you are going to do if market behaves in a particular fashion. Trading and Investing is not a game of conviction. It is a game of scenario planning and executing trades and investment once a particular scenario plays out as one anticipates.

There is always bull market somewhere - The best way to identify bull market is to track money flow. Hence, always keep track of stocks that make a new 3 month high or 6 month high or 52 week high to identify areas of strength.

Be ready for surprise - The market makes the strongest move in direction of surprise. Hence, if majority of people are bullish - the sell off can be brutal; as it takes time for people to adjust to new reality. And similarly, it can happen in reverse direction also.

Prefer Discipline over Conviction - Market has its own view. The key to trading is not to argue with it, but try to take advantage of the move that it makes. One should always have an open mindset on the market and should always keep asking the question - How can I make money by taking acceptable risk?

I think - A Hunt for bottom is more of an academic exercise and not something one should be really concerned about. There are always reasons to be pessimistic and optimistic; and generally most of them are good one. For me, a successful trade makes me optimistic and a bad trade makes me pessimistic. At the end of day, that's what counts - not bottom or top.

Happy Trading

Cheers

Deepak Singh

Market Analyst, State of the Market

YAHOO IM - stateofthemarket

All Charts have been published with permission from www.chartalert.com

Disclaimer - The trading notes is Deepak's perspective on the market. The stocks listed here have been selected based on recent performance, and have probability of success in near term. But remember, it's still a probability, and chances are that stock may still not perform as expected. The column is purely for educational purpose. Please use your own discretion in trading. Trading Futures and options involves significant risk. You must consult your own financial advisor before trading to determine if it is suitable for you. 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.

Don’t panic when the stakes are down

By Priya Nigam

Indian stocks have been highly volatile over the past couple of months. It’s going to take us a long time to forget last month’s Sensex crash. The “Saare Jameen Par” joke was quite funny (on hindsight). But at that time I wasn’t exactly laughing. Actually, I couldn’t… was too busy chewing all ten finger-nails off.

The latest Economic Survey 2007-08, presented by Finance Minister, Mr. P Chidambaram, reminded us that the Indian stock market volatility is not new. Over the past two years, Indian stocks have been more volatile than those in several global markets. “In the period January 2006 to December 2007, the volatility of weekly returns of Indian (stock) indices was higher as compared to indices outside India such as S&P 500 of US and Kospi of South Korea,” the survey report said. While the stock markets may have taken us on a roller coaster ride, having scaled new heights and then crashing in October last year and again last month, Indian bourses did do well overall. The BSE Sensex jumped 47.1% in 2007.

Market capitalization, which is an indicator of investors' wealth, nearly doubled last year to $1,683 billion, according to the survey report. While this is good per se, it still stands short of China’s $4,459 billion and substantially below the US figure of $17,773.05 billion. Having said that, it is also worth noting that India's market capitalisation was 150% of the country's GDP, while this figure stands at 137.3% for China and 128.8% for the US.

“Individual investors need to take informed decisions and remain cautious,” the annual report added, while warning against “herd mentality” and “panic.” There is some concern over a slowdown in capital inflows, which would exert pressure on stocks. But there is reason to be bullish. Expectations are for companies to report strong earnings, which should support the stock markets. India has already grown into a trillion dollar economy, with GDP growth being close to 9% for the last three years. This fiscal also, the economy is expected to record 8.7% growth. The survey did identify some challenges to this growth, including India’s weak infrastructure, the rupee appreciation, inflation and the US slowdown. And to boost this growth rate to double digits, India will need additional reforms, the survey added.

One obstacle that India will definitely need to tackle is its shortfall of skilled personnel. Companies are already struggling with high wages and attrition. India needs to have a significantly larger number of institutions offering professional education and vocational training. “If we get our skill development act right, we will be harnessing a ‘demographic dividend’,” Mr. Chidambaram said.

Despite the uncertainties and shortfalls, it was good to hear the Finance Minister say, “If you wish me to sum up in one phrase the outlook for 2008-09 then I would say 'optimism', but with caution as the 'watchword'. There are a number of things going in favour of India.”

How to spot undervalued stocks

By Vipin Agnihotri

In my opinion, there are plenty of proven companies such as Reliance Industries, Bajaj Auto and Infosys technologies. But fact remains that they might be fully valued. There is no doubt that the whole market is watching their business routines and news relating to any change that may be positive or negative for those companies.

If experts are to be believed, the market quickly reacts to such information and as such their value would reflect their perceived business prospects at any given point of time. It is worthwhile pointing that the prices of such stocks may take a random walk on the basis of certain general news, which has a bearing on the overall market sentiments but having no effect on their prospects.

Generally speaking, those kinds of situations give opportunity to get into such excellent stocks at a price below the normal valuations. Remember that such events and news won’t often come. The pivotal factor here is that even if they occur also how will one know what is the right price to enter a stock. It is worth mentioning in this regard that volumes have been written on how to value stocks and volumes remain to be written on the subject. This is because of the simple reason that the circumstances keep on changing and new valuation parameters are designed and employed in such a way to meet changing circumstances.

Though, there are plenty of complex valuation routines you need to have a holistic analysis that the company is doing well on all counts and not just valuation. The India Street has decided to look into the methodology, which can help an investor adjust the limits of his parameters on the basis of overall outlook.

The methodology is more of quantitative in nature to get rid of subjectivity and needs good amount of past data regarding their balance sheet, profit and loss account and cashflows to pinpoint under-valued stocks. There is no doubt in my mind that this step-by-step approach can assist you in finding a few good undervalued stocks. But sometimes you may not find one also.

Yes, you guess it right! Finding undervalued stocks are like finding oyster pearl from deep inside the sea. In theory, the analysis involves 5 basic factors and selects only those that satisfy all the parameters used for each factor. It is up to you whether to relax a parameter because some other parameter is so good so that it will negate the weakness of the other parameter. The five factors to analyze the stocks in the market are stability, profitability, capital structure, management and valuation.

Stability can be attributed to the stable income generation capacity of the company and its potential to grow. Profitability, on the other hand means different things to different people. For a lender the total cash flow generated out of operation is pretty critical. But for an equity investor the Net Profit Margin is more important.

Suggested Reading:

Stock of the week: Hindustan Unilever Limited

UPDATED Jan 2008! Rakesh Jhunjhunwala Holdings

UPDATED JAN 2008 - Below we have discovered the latest holdings for renowned India investor Rakesh Jhunjhunwala. We will keep this information up to date and the information will refresh on its own as we discover new trades. Please pay attention to the tabs below the embedded spreadsheet as you can click on them to see earlier holding time periods.

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• Prospective Jhunjhunwala Stock Picks
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• The India Wall Street FACEBOOK Social Stock Picking Application

HDIL IPO Expected to be a Winner

Stock is listed at a discount to rivals

Housing Development and Infrastructure Limited (HDIL) is a real estate company with operations in Mumbai and around its neighbourhood areas. HDIL’s business involves construction and development of residential projects, commercial and retail projects, slum rehabilitation and land development. The company also clears slum land and rehouses slum dwellers. The company develops infrastructure on land which is sold to other property developers.

HDIL is part of the Wadhawan Group (formerly Dheeraj Group), and has been involved in real estate development in the Mumbai Metropolitan Region for almost three decades. As of December 31, 2006, the Wadhawan Group has developed approximately 62.1 million square foot of saleable area. It has constructed approximately 16.3 million square foot of rehabilitation housing area under slum rehabilitation schemes. HDIL's promoters are Rakesh Kumar Wadhawan, Sarang Wadhawan, Kapil Wadhawan, and Dheeraj Wadhawan, who, together with the rest of the Promoter Group, hold about 73.2% of the outstanding share capital as of December 31, 2006. Sarang Wadhawan is the Managing Director of HDIL.

HDIL has built groups of apartments, multipurpose townships and towers for sale to individuals. It has also constructed office spaces, multiplex cinemas and shopping malls. HDIL undertakes slum rehabilitation projects under a Government scheme administered by the Slum Rehabilitation Authority in which developers are granted rights in exchange for clearing and redeveloping slum lands, including providing replacement housing for the dislocated slum dwellers.

Apart from Mumbai, they are planning to have presence in Kochi and Hyderabad as well. The expansion plans include building special economic zones, hotel projects and megastructure complexes. HDIL's total land reserves comprise approximately 112.4 million square foot of saleable area to be developed through 32 ongoing or planned projects. They have 21 ongoing projects, which are under construction and development, aggregating to approximately 45.9 million square foot of saleable area, and they have additional 11 projects, which are planned for construction and development in the future, aggregating approximately 66.6 million square foot of saleable area.

Another company belonging to this group, Dewan Housing Finance Corporation is listed in both BSE and NSE. The company offers loans to the lower and middle income groups.

HDIL sponsored the umpires’ shirts during Champions trophy in India in the year 2006 and also during the ICC Cricket World Cup in West Indies in the year 2007.

ICC Cricket World Cup 2007

Umpires Billy Bowden (New Zealand) and Aleem Dar (Pakistan) in a Super Eights match Australia v Bangladesh, Antigua on 31.03.2007

Image courtesy: www.cricinfo.com & Getty Images

Project List (Residential):

Project	Location	Status
Affaire	Bandra (W)	Under construction
Multiplex	Kandivli (E)	Under construction
Dheeraj Apartments	Jogeshwari (E)	Completed
Harmony	Goregaon (W)	Under construction
Row House	Kandivli (E)	Completed
Sneh	Bandra (W)	Completed
Swapna	Bandra (W)	Completed

Project List (Commercial):

Project	Location	Status
Arma	Bandra (E)	Completed
Dreams	Bhandup (W)	Under construction
Dreams The Mall	Bhandup (W)	Under construction
Kaledonia	Andheri (E)	Under construction

Financial performance of the company:

The sales turnover and adjusted profit after tax since 2004 are given in the following table:

Financial year	Turnover	Profit after tax
	Rs. Crores	Rs. Crores
2006 – 2007 *	848.84	367.23
2005 - 2006	434.86	117.29
2004 - 2005	64.93	14.58

* Upto 31^st December 2006

Details of the IPO:

Issue Period: June 28, 2007 to July 03, 2007

Issue Size: 2,97,00,000 Equity Shares (Excluding Green Shoe Option of 44,55,000 Equity Shares)

Issue Type: 100% Book Building

Face Value: Rs.10/-

Price Range: Rs. 430/- to Rs. 500/-

Market Lot: 14 shares

Retail Investor cap: Rs.100,000

Application forms can be downloaded from this link.

Red Herring Prospectus is available at this link.

Conclusion:

As the IPO is priced is at a discount to players of similar size, investors with a risk appetite may think of investing in this issue with a three or four years perspective. At the offer price band of Rs.430 – Rs.500, the P/E is 14 to 16 for the financial year 2006 -2007. Obviously it is difficult to compare this IPO with DLF in terms of issue size. Of late, Indiabulls real estate stock has been moving up in the stock market. We will have to wait for DLF stock to be listed to see how DLF is received by the market. But going by the company’s financial performance in the last few years and their presence in Mumbai area which is the commercial capital of India, stock should be able to do well. Response to DLF issue was not great from retail investors (80% subscription only). We will have to see how they react to this IPO.

SUNDARAMURTHY VADIVELU

The India Street

Technical review of select India stocks – Part 2

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

It is to be understood clearly that this article has been written purely for informative purposes only and the author cannot take any responsbility whatsoever for transactions, if any, entered into by the reader. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India

http://www.nseindia.com/

Charts have been created with FCharts Pro, © Spacejock Software, Australia

http://www.spacejock.com/

Overview:

In this article let us discuss some stocks which have either been consolidating over a few months or have fallen considerably from their all time highs. This will enable an investor to identify potential opportunities even in an uncertain or falling market.

In the previous review on select India Stocks I had mentioned that the following stocks need to close above their resistance levels:

Ind Swift Laboratories Limited: 63.40 (Current: 59.20)

Omax Autos Limited: 94.70 (Current: 92.05)

Indiabulls Real Estate: 420 (Current: 376.35)

As on 08.06.07 the stocks have not broken their short term resistance. However, we will keep tracking them in every review.

Jindal Photo Limited:

The stock had fallen from a high of 418.95 in May 2005 to a low of 70 in June 2006. It has been consolidating since then. A year of consolidation is very interesting. This stock is currently bullish in both daily and weekly charts.

One can see the consolidation between 70 and 120 levels in weekly chart in the graphic displayed above. The support at 70 still remains intact even though it came close to be broken around 72 in early March 2007. The stock had strongly bounched back from that level. The only requirment now, is that it has to close above 122.30 on a weekly basis. Current market price is 109.60. Though a bearish harami pattern has been formed during the last two weeks, we will wait for the price action next week to confirm the trend. Harami (English: pregnant) is usually a “confusing” pattern unless confirmed with another parameter. If it manages to break resistance we can expect targets of around 159 and 187.

Pochiraju Industries Limited:

The stock got listed on 09.02.07 for an issue price of 30. After hitting a high of 63.70 on the same day it had fallen to a low of 20.25 on 26.03.07. The resistance at 27.20 was broken with a huge “upward gap” on 23.05.07.

“Upward Gap” or positive difference between yesterday’s high price and today’s low price is an indication of strong demand for the stock. But in many cases, the so called “gap” gets filled quickly and we need not worry much about this. Watch the consistent decline from 23.05.07 after the “gap” day. This shows that the crowd is not interested at all in the stock now; But the technical analysis theory suggests that this type of formation is usually highly bullish. Why would a stock should jump suddenly from 22.35 to 30.70 in just two sessions and no one is interested after that? If the price volume action is not uniform we can suggest that it is probably something else. The stock appears to be certainly very bullish and 50% retracement from its low works out to a target of 42.15 or about Rs.18 from the current levels.

Punjab Tractors Limited:

The stock managed to climb up from a low of 227.90 on 18.01.07 to a high of 363.70 on 09.02.07. It was on a corrective decline for about 3 months. It has become bullish once again. Usually, 50% retracement will be a good support in a bull market and it will be a good resistance in a bear market. One can see it from the above chart. Once the stock goes below 50% retracement it manages to bounce back again and closes above it. 4 months of consolidation is extremely good and given the bullishness of the stock, we can expect it to test its all time high of 363.70 shortly. Further upmove may be possible if it manages to close above it on a weekly basis.

Conclusion:

All the three stocks mentioned above have been consolidating over a period of time now. In stock markets, big movments usually take some time. Stock may be consolidating for a long while eventually before a breakout occurs either way. But as of now, from the data available, it could be only on the bullish side.

SUNDARAMURTHY VADIVELU

The India Street

Takeover targets and plans of Indian companies

June 10, 2007

Important Disclosure

The information presented in this article highlights some of the news items published in the media about companies planning for possible takeovers. The author is not related to any of the companies, news sources or stock exchanges concerned.

In order to study the relationship between media speculation and market price of a particular company, price charts have been included. This does not, however, mean that the prices have fluctuated only because of the speculation.

The reader shall bear in mind that speculations and rumours always float around in any stock market. It is upto him to verify the genuineness and accuracy of such reports. The author shall not be liable for any consequences whatsoever, present or future, arising from reports that are speculative in nature.

The source for the price data displayed in graphics:

National Stock Exchange of India Limited, Mumbai, India

http://www.nseindia.com/

Charts have been created with FCharts Pro, © Spacejock Software, Australia

http://www.spacejock.com/

Introduction:

In simple terms, “takeover” means a company purchasing or acquiring shares of another company, thereby enabling the acquirer company to get management control over the acquired company. For this purpose, the acquirer shall inform the board of the company to be acquired. If the offer suits the best interests of the board, its directors and shareholders then it may be approved by the company.

In the past, there have been several take overs in India. For example, Tata Steel took over Corus, Anglo-Dutch steel maker in October 2006. Previously the Tatas had taken over Videsh Sanchar Nigam Limited, a telecom major providing long distance and internet services in India. Other examples are Reliance taking over BSES (Bombay Suburban Electric Supply, now Reliance Energy Limited) and IPCL (Indian Petrochemical Corporation Limited).

Let us discuss some recent speculations in the media about possible takeovers.

Computer Maintenance Corporation (CMC):

Earlier it was owned by the Government of India. Tata Sons acquired 51% stake in CMC in October 2001 and the Central Government disinvested its 32.31% stake in 2004. CMC specializes in hardware and software maintenance. After the acquisition it was an independent entity within Tata Group and was maintained by TCS (Tata Consultancy Services.)

During January 2007 some abnormal price movment could be observed in the stock as shown below:

The stock had gone up from 696 on 12.01.07 to 1225 on 17.01.07 on a closing basis (76% jump in just three trading sessions.) It is quite possible to explain this technically. But where from this large “driving force” came?

There were media reports that CMC may merge with TCS. However according to NSE web site, this is not true. In an announcement dated 17.01.07 the exchange said:

“News Verification : The media had reports that CMC Ltd may merge with TCS. The Exchange, in order to verify the accuracy or otherwise of the information reported in the media and to inform the market place so that the interest of the investors is safeguarded, had written to the officials of the company. CMC Ltd has vide its letter inter-alia stated, "We wish to inform you that CMC Ltd does not have any plans or its Board of Directors has not discussed anything related to merger with TCS or any other Company till date."

In another announcement dated 28.03.07 it was mentioned by NSE that:

“CMC Ltd has informed the Exchange regarding the news published in The Times of India dated March 28, 2007 under the heading "Tatas set for TCS, CMC merger" that : "At the Outset, we wish to inform that CMC Limited does not have any plans or its Board of Directors has not discussed anything related to merger with TCS or any other Company till date".

Considering these two statements of the company, we may, for the time being at least, conclude that it was the media speculation that led to such a price rise in CMC. If you have read my previous article, “Sectorwise performance – myth or miracle?” in which we saw how the market moves based on expectations, one may get the impression that there was some news to be heard. However, so far there hasn’t been any.

Hindalco Industries Limited:

Owned by Aditya Birla group, it is one of the 50 index stocks in the S&P CNX Nifty. Aditya Birla group holds 27% stake in Hindalco. Foreign Institutional Investors hold 20% while financial institutions hold 12%. 10% stake is with GDRs (Global Depository Receipts) and the remaining is held by retail investors.

On 12.02.07 NSE web site displayed the following announcement:

Hindalco Industries Ltd. has informed the Exchange on February 11, 2007 that:

"Hindalco Industries Limited and Novelis Inc, the world's leading producer of aluminium rolled products today entered into a definitive agreement for Novelis to be acquired by Hindalco in an all cash transaction at approximately US$ 6 Billion, including approximately US$ 2.40 Billion of debt. Under the terms of the agreement, Novelis shareholders will receive US$ 44.93 in cash for each outstanding common share. The agreement is subject to customary closing conditions, including shareholder and regulatory approvals, and is expected to close by the third quarter of 2007".

What was the market reaction? See the chart below.

On the day the announcement came, the stock had lost 14.13% on closing basis. We can see that the “good news” announced by the company was “badly” received by the market.

On 04.06.07 there were reports that Canadian company Alcan may team up with Sterlite for a hostile takeover bid for Hindalco. The stock was up almost 15 rupees (previous close to high) eventually to settle 4% up at the end of the day on closing basis.

Interestingly, Hindalco itself was rumoured to be in talks with global mining giant BHP Billiton for a joint bid to acquire Alcan earlier. US aluminium giant Alcoa had offered USD 73.25 per share for Alcan on May 7. On May 23, Alcan rejected the USD 27.6 billion takeover bid from Alcoa, which could have created the world's largest aluminium company.

The market reacted very badly to Hindalco’s acquiring Novelis Inc. whereas for Alcan’s possible bid to Hindalco it reacted positively. But experts feel that they do not foresee the deal going through, as it was an Aditya Birla group company and taking over a company of this size and stature would be very difficult.

However nothing can be considered final unless officially confirmed or denied by the company authorities.

Patni Computer Systems Limited:

This Mumbai based software major was among the media speculation last month. On 19^th May 2007 some media reports suggested that Patni Computer Systems are planning to sell 25% stake to IBM. There was another report suggesting that former Wipro vice chairman Vivek Paul was willing to take a stake in the company. The stock probably had already run up expecting some news as displayed in the chart below:

It can be noted that the stock had gone up from 375.40 on 02.04.07 to 514.75 on 17.05.07. When the media was speculating about the stake sale, the volumes were not much; nor the prices were spurting reasonably well. This indicates that the market was probably aware of something happening.

On 22.05.07 NSE web site made an announcement:

“News Verification : The media had reports on May 19, 2007 that Patni Computer Systems Limited IBM may acquire around 25% stake in the company. The Exchange, in order to verify the accuracy or otherwise of the information reported in the media and to inform the market place so that the interest of the investors is safeguarded, had written to the officials of the company. Patni Computer Systems Limited has inter-alia replied. "We wish to clarify that the Company has not received any intimation from any large shareholder to offload any stake to any of the companies referred in the said news article."

The Patni family holds 43.97% stake in the company according to shareholding pattern made available to public on NSE web site. The media speculated that “there were some differences between Chairman Narendra Patni and his brothers Ashok Patni and Gajendra Patni and as a result some senior management people have left”.

Finally the Chairman sent an email to the employees saying that the company had no plans to sell stake to anyone. It also said that the company policy was not to comment on media speculations.

Conclusion:

Media always speculate. It is very hard to find the truth in these rumours. It is the company which is aware of all facts and they do publish them in the media as well as communicate to the stock exchanges as and when it is needed. The investors need to be careful while acting based on media reports.

Takeovers, mergers etc. will have to be approved by the board and will eventually be known to the public officially.

SUNDARAMURTHY VADIVELU

THE India Street

Technical review of select India Stocks for medium term

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc.

Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks.

The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article.

It is to be understood clearly that this article has been written purely for informative purposes only and the author cannot take any responsbility whatsoever for transactions, if any, entered into by the reader. The author does not guarantee that the projected targets will be achieved within the stipulated time frame.

Source for the price data displayed in graphics and tables:

National Stock Exchange of India Limited, Mumbai, India

http://www.nseindia.com/

Charts have been created with FCharts Pro, © Spacejock Software, Australia

www.spacejock.com

Overview:

In the previous articles we have seen that overall index performance and the individual stocks’ performance are unrelated. Even as the indices are scaling to new highs, we find some stocks breaking supports and making new lows. Whatever be the index movement, some stocks will continue to be bullish for short term and medium term. Let us analyze few of these stocks and study the technical scenario as on 06.06.07.

Ind-Swift Laboratories Limited:

This was the so called ‘darling’ stock of the year 2004. Between September and December 2004 the stock appreciated more than 5 times, from 52 to 272. What happened after that of course, is history. It is all the way down to 51 and trying to climb up again.

Why would a person be interested in a stock like this?

Every time a stock goes up or down, the market players are different, crowd psychology is different, investor sentiment is different. A stock that performed so well few years ago may not necessarily perform again. There are a few exceptions too.

This stock has recorded 3 lows so far: 51.10 in June 2006, 51 in November 2006 and 51.15 in March 2007. 55.40 was the previous high before the huge uptrend in September – December 2004. So technically, we can think of a triple bottom at around 51. The short term trend for the stock is bullish and it has closed at 61.90, just 1.50 short of its previous high in the current trend which is 63.40. Once this level is breached on a closing basis, we can think of the next target at 85.20. A close above this would take this stock to 126.70. The strong resistance of course exists at 181, which will be difficult to penetrate.

Having said that, let us think of the other scenario: If the stock fails to close above 63.40, then what will happen?

1. If 51 level is not breached and stock bounces back after hitting that level, we can expect some more sideways movement.

2. If 51 level is breached on a closing basis we can expect more down trend.

However, one gets a feeling that 51 is a very strong support level and is unlikely to be breached. No assurances can be given though.

Omax Autos Limited:

The stock had fallen from a high of 171.60 to a low of 58 in June 2006. As displayed above, “inverse head and shoulder pattern” has been formed in the weekly charts which is a bullish sign. Strong support exists at around 82 and once a stock closes above 94.70 which is short term resistance, we can expect it to reach 133 level.

As on today, stock has closed at 93.95. Interestingly, yesterday it formed a “hammer” and today an “inverted hammer”. There is an upward gap of Re.0.50 in the daily chart and this indicates strong demand for the stock.

At least 3 leading indicators, Wilder’s DMI, Stochastics and On balance volume support the bullishness and current trend in both daily and weekly charts.

This is yet another stock which did not “participate” in the ongoing “rally”

Indiabulls Real Estate Limited:

With all kinds of talks going in town about whether real estate prices will top out or bottom out, this one is relatively a new issue. Though bullishness is still intact, one would like to watch for a close above 420. Indiabulls Securities Limited’s IPO, which got listed for Rs.16 in 2004, was a huge success with the scrip closing at 568.80 on 04.05.07. It is surely a stock to watch.

SUNDARAMURTHY VADIVELU

The India Street

Current India Stock Recomendations

Below we have obtained the current stock recommendations from Emkay PCG. These are current as of June 3, 2007

Candlestick Patterns in Indian stock markets

Important Disclosure

The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc. Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks. The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article. The reader needs to understand that this article is purely for informative purposes only and all transactions, if entered into by him will be solely at his risk. The author does not guarantee that the projected targets will be achieved within the stipulated time frame. Source for the price data displayed in graphics and tables: National Stock Exchange of India Limited, www.nseindia.com Charts have been created with FCharts Pro, www.spacejock.com

In the previous article we saw some of the chart patterns getting formed over a period of time, i.e. in few months. In this article let us discuss some basic candlestick patterns, which have been used by Japanese rice traders in the 17^th century and still have lot of importance when judging the short term trend.

A 'candlestick' is a pictorial representation of the period's price action (day, week etc.). A typical candlestick will look like this: In the figure shown above we can see a 'white candle' i.e. close is more than open. In the computer age, it is displayed sometimes as green, so we will call it a green candle. The line shown above the close price is called the upper shadow while the line below the open price is called the lower shadow. This explains the volatility during the session. The stock opened at a price, went to a low, bounced back to a high price and it managed to close at some other lower price but higher than the open price at the end of the day. The rectangular green box drawn between open and close is the true trading range of the session. The upper shadow above indicates selling pressure while the lower shadow indicates buying pressure. Long real bodies tell us that the buyers were in control; Long shadows show that the volatility was very high during the session.

An example of a 'black' or red candle is given below:

Note the length of shadows in previous figure and this one. Lower shadow is higher than the upper shadow while in the previous candlestick it was almost equal.

Single candlestick patterns:

There are several single candlestick patterns, some of them are given below:

Long white line: Usually a very long real body and small shadow(s) with close greater than open price.

Long black line: As per above, but open greater than close price.

Hammer: Body is between 1/10^th and 1/3^rd of the candle height and there is no upper shadow.

Inverted Hammer: Same as above except that there is no lower shadow.

Doji: Open price is same as (or almost same as) close, however, it is not possible to expect all stocks to close exactly at the open price all the time. So usually a tick or two will be permitted either way. The body should be nearly at the centre of the candle, and some tolerance is always given in this case too.

Dragonfly Doji: Same as doji and there is no upper shadow.

Gravestone Doji: Same as doji and there is no lower shadow.

Spinning Tops: These usually have small real bodies and centered around the middle of the candle. The real body is more than that of doji.

Single candlesticks will depict the price action during a trading session. There are combinations of candlesticks or multiple candlestick patterns which are classified as either reversal signs or continuation patterns. There are bullish patterns as well as bearish patterns.Following are some of the most common patterns in Indian stock markets.

• Bullish engulfing pattern
• Bullish harami pattern
• Bullish harami cross pattern
• Bullish piercing line pattern
• Bearish engulfing pattern
• Bearish harami pattern
• Bearish harami cross pattern
• Bearish dark cloud cover pattern

Let us discuss about the engulfing patterns in detail.

Bullish engulfing pattern:

A green candle completely 'engulfs' the red candle as displayed in the chart. There are three variations of engulfing:

1. The entire red candle is completely engulfed by the real body of the green candle;
2. The real body of the red candle is engulfed by the real body of the green candle and shadows of the red candle are engulfed by the shadows of the green candle;
3. The real body of the red candle is engulfed by the real body of the green candle; however, shadows of red candle may not be engulfed by the body or shadows of the green candle.

The above classification is based on the order of importance.

We may think of engulfing as an eclipse. What does this mean to the trading activity?

At the end of a sell off, particularly as support levels are reached, buyers enter the stock and prevent it from further fall. This is shown by the daily chart of GLENMARK:

In the previous article I mentioned, "During a corrective decline in a bull market, we can see declining volumes with declining prices." Watch the volume decrease gradually with decreasing prices as prices fall near the support line. It is here the bulls enter the market.

The bullish engulfing pattern was strengthened by a green candle and higher close on the next day (also called three outside up pattern). From a close of 299.80 on 06.10.2006 it managed to reach 571.15 on 15.11.2006 (almost 90% appreciation).

However, in contrast, an engulfing pattern formed at the top of an uptrend may be at the most a support level or a mere continuation pattern. The Japanese call this "a double lovers' suicide" since after spotting the pattern many people jump into the stock, only to realize that it was the end of the rally. So while judging the importance of this pattern, the points to be noted are:

The stock should be bullish;

There must be some continuous downtrend;

The downtrend must be confirmed by both price and volume;

A red candle must be engulfed by a green candle;

It must be confirmed by a green candle and higher close on the next trading session.

Bearish engulfing pattern:

A red candle completely 'engulfs' the green candle as displayed in the chart. As in the case of bullish engulfing, bearish engulfing also has 3 classifications based on the order of importance viz. whether entire green candle is engulfed by real body of the red candle, or green real body and its shadows are also engulfed by red real body and its shadows respectively or shadows may not be engulfed at all.

At the end of an upward trend, particularly as resistance levels are reached, sellers enter the stock and prevent it from further rise. This is shown by the daily chart of RAINCALCIN:

As evident from the above chart, the resistance level of 56.55 could not be penetrated by the stock and a downtrend starts. At the end of the pullback rally sellers enter the stock and vigorous selling starts. This is followed by more selling and stock manages to hit a low of 31 or about 45% fall from its high.

The bearish engulfing pattern is confirmed by a lower close and a red candle on the following day.

Conclusion:

Potential reversals are many times identified by bullish and bearish candlestick patterns. As with any other method, this works only when the market is in a definite trend. There may be hundreds of candlestick patterns occurring each day in the market but only few of them are relevant, since it is quite possible that a stock may be moving sideways, a bearish engulfing pattern may occur during the uptrend of a bullish pattern etc. and these are not true patterns. Identification of the successful pattern involves a little bit of in depth analysis.

Candlestick patterns alone should never be used to initiate a trade. It is necessary to analyze all other parameters like support, resistance, momentum indicators, moving averages etc. before selecting a stock for trading.

by SUNDARAMURTHY VADIVELU

The India Street

Technorati : India Stock Market, Stock Market

Weekly review of Indian stock market

June 2, 2007 Important Disclosure The views expressed below are the opinions of the author based on the principles of technical analysis, a science that has been tested and proven for more than hundred years. The views are unbiased and informative in nature. These do not constitute an offer to buy or sell stocks. Every effort has been made by the author to ensure correctness of the information presented. The author cannot be held responsible for omissions, mistakes etc. Investing or trading in stock markets is a high risk activity. Those who cannot afford to risk their money should refrain from dealing in stocks. The author has no vested interest in any of the stocks mentioned. He and/or his close associates may or may not be having positions at the time of writing this article. It is to be understood clearly that this article has been written purely for informative purposes only and the author cannot take any responsbility whatsoever for transactions, if any, entered into by the reader. The author does not guarantee that the projected targets will be achieved within the stipulated time frame. Source for the price data displayed in graphics and tables: National Stock Exchange of India Limited, Mumbai, India http://www.nseindia.com/ Charts have been created with FCharts Pro, © Spacejock Software, Australia http://www.spacejock.com/ Index this week: The nifty closed at 4297, gaining 48.90 points on weekly basis or about 1.15%. Between 1st March and 11th April a nearly ‘triple bottom’ formation could be seen in the daily chart of nifty. This is a highly bullish sign and the index has managed to close above its previous all time high of 4245. Having said that, attempt was made by the bears to push the index down immediately after the index closed at 4278 on 22.05.07. One can notice the ‘bearish engulfing pattern’ there, but it is of little significance since the index broke the resistance on a closing basis. Immediately bulls were seen in action and index once again closed above 4245. This indicates that the bull run is not yet over. Correction, if any will be a good opportunity to enter the market. As I said in my earlier article, Nifty is likely to reach 4600 soon. Support levels for the nifty are 4218 and 4039. The engulfing pattern seen at the top of the trend on 31.05.07 is not a helathy sign. It was further confirmed by the sell off next day, with a very long upper shadow. We can anticipate a correction now up to 4039 or 3902.

However, the weekly chart shows that there is an ascending triangle breakout with a triangle height of about 690 points. This when added to 4245 gives a target of 4935.

We can see from the charts that Nifty is bullish right now. Advance Decline Ratio: It can be seen from the above table, on a weekly basis bulls have the slightest edge over the bears. Though index is bullish, cash stocks have performed quite differently. Following table gives the list of top 5 gainers and losers among cash stocks: SREI Infrastructure Finance Limited has been bullish since 23.04.07. After hitting a high of 66 on 16th May the stock tested its support levels at 60. When it closed below 60 a “piercing line pattern” was formed. From 58, it managed to close at 86.30 or about 48.79%. I have very often seen this candlestick pattern yielding very good results, provided it is formed at the right time. Helios And Matheson Information Technology Limited formed a “double bottom” around 124.35. Piercing line pattern was formed on 25.05.07 with 127.05 as close. The next Friday, stock hit 20% upper freeze and closed at 170.50. Abhishek Mills has been bearish ever since it got listed on 19.03.07. Bearish engulfing pattern was formed in Torrent Power Limited on 29.05.07 which was confirmed by further lower close and a red candle. The stock lost about 11.28% while failing to close before its previous high. Conclusion: Nifty continues to be in overbought zones in weekly charts. However, it is normal for a scrip to be like this during a bull market while in bear market it is normal to be in oversold zones. As such there are no reversal signs in daily or weekly charts and let us hope for the best next week. In the next article we will discuss some technically interesting stocks for the short term. By Sundaramurthy Vadivelu The India Street