- Market opening today would be influenced by Greece outcome. But expect that event to have an impact just for a day or two.
- We have defined the contours of supports and resistances on both sides of the current prices and laid out the expectations and also how to trade them. This is the best that we can do under any circumstance.
- Bank Nifty may do well in case markets are better and could wrest mantle of leadership from Nifty if that happens. Private sector banks ought to do well in that case.
- Though the bias is clearly bullish, we don’t stand around arguing the bullish case in the event the indices break the trendline support levels indicated.
- Midcap indices are well placed and may continue to see good action and would be a place to concentrate on in the future as well.
INDEX TRADE SUMMARY
- We continue to remain long in the NF and those long from lower levels can protect with a stop below 8400.
- Bank Nifty buy trigger did not occur yet.
- Bearish triggers for the short term below 8315 and 18100.
STOCK TRADE SUMMARY
- Bhel, Dabur and Cipla buy signals come thru nicely. Look good for more. Bajaj Auto too. AB Nuvo shaping up for a buy. Hexaware appears weak and can be shorted.
Since we will not hear of what happened in the referendum in Greece until late on Sunday, this letter will have to address both sides of the issue. First, since we had the indices rise into resistance levels by Friday, lets look at the bearish side. The chart show is Nifty futures daily with Stochastic and Adx. The prices have been annotated with Fib retracements. We are currently just shy of the 50% R from the March top to the June bottom. Prices also run into the pitchfork channel extension levels at the current high. In both NF and BNF we are trading near the highs of the last big supply candle of early June. The stochastic indicator is into overbought zone. What is important to note in there is the presence of a strength band (see arrow on subpanel 1) and despite the seemingly strong rise we have not seen a similar strength band appear at the higher end of the stochastic range. This implies that the downtrend strength signalled earlier is not yet erased. So we may have to consider that the resistances currently available may well exert. All it needs is some event trigger and Greece can certainly provide that. Supporting this scenario is the fact that the DMI lines have not yet established bullish dominance despite the nice rise. It will require the +DI line to move above the green line (see subpanel 2). That will not happen if the index were to turn down from now. In such a case the current rise, strong as it appeared to be, would have to be labelled as yet another rally attempt in an overall down trend in progress since the March high. So, though the rise did last reasonably long, covered a reasonable amount of ground during the rise, it still could not work up the necessary momentum strength that is really needed to sustain a rising attempt. Volume has been average throughout and hence not of much help in confirming price moves. Hence we have to rely on oscillator signals and there we are finding ourselves short of confirmation.
The situation in the Bank Nifty is not very different. The chart shown is the daily BNF annotated in a similar fashion as the NF. We see almost the same picture here except for the fact that the stochastic does not show strength band during the recent fall as well as the rise. Hence the BNF can be said to be in a ranging sort of move compared to the NF where the bearish trends have not yet been overcome.
In the last week’s letter I had written that Banks may be in a position to grab leadership mantle in case there is some upward traction in the private sector bank stocks. That continues to be the scenario. In fact if the trading in the week ahead does not become bearish, we should probably look at the bank sector to lead the Nifty upward. Hence I would recommend still keeping a keen eye on the action of the main bank stocks. Of course, bullish bets are off in case there are downward resolution post any Greece-led (or other) declines.
So whats in store if the market moves lower from here? Well, first answer would be a confirmation of the same. A simply trendline would suffice and such a trendline breaks at 8315 levels (rising at about 20 points per day, though). Once that goes, we can be sure that the downtrend has resumed. So move stops on pending longs on Nifty to 8315 and no lower. Below this we may head for 8220 and 8150 as the next measured support points. It will be important to see the kind of candles that appear during such a move and also the kind of momentum readings that we get. These will be tracked on the 60 minute charts as well to see whether we get additional reads. Lets look beyond that target only when we come to that bridge.
For the BNF the trendline support is seen at 18100 and break of that would mean end of good times that we have been experiencing recently.
Now what about the bullish case? Well, bullish targets would be a continuation of the current ongoing upmove only. In earlier letter I have already indicated targets of 8515 and 8550. If these are exceeded then we could be looking at targets in the range of 8670-8700. Now those are attractive targets for 1-5 type of traders and hence one must participate in case the market continues higher.
The Bank Nifty could head towards 19000 levels in case the rise continues.
Next question could be, which side is the bias? Ideally, with an event one should first consider both possibilities. Having done that already (and defined relevant points of action), we can speak about the bias. My stated bias continues to be to the bullish side because the sentiment meter points towards that side. Greece has been floating around for a while and hence its outcome is not going to be a surprise for anyone. Most people have already divided themselves into a Yes/No camp already. So I don’t think all those talks of big moves in case Greece does one of the two things is not going to happen. Much is in the prices already, across the globe. If an event is unable to reverse the sentiment, the current sentiment will continue to flow.
Lack of earnings growth evidence is not denting the market trends. Everyone knows that the long term average of trailing PE is 18x and we are currently trading at 23x. Everyone also knows that 24-25x is expensive territory and all that. There seems to be consensus that earnings are not really going to improve quite yet. Despite all this the markets refuse to go below 8000 and have come back strongly again. So there seems to be some other undercurrent about earnings events and multiples that is getting in place here.
Politically everyone knows that the coming parliament session may be a washout and Modi wave has receded in popularity and media attacks. Q1 result expectations are in the basement. Earnings downgrades are in plenty (Ridham Desai says they are at all time lows!). Despite all these the market doesn’t want to go below 7900? It had its chance and there was absolutely nothing new that produced the 500 point rally that we have got so far. But still it occurred and seems to want to continue!
So I see no other choice with me except to retain my bullish bias.
I was checking the sector indices charts and found the set up of the Bse Midcap index chart most interesting. This index is trading at a new high. It can be seen that the broader based indices (Bse200, Bse500) are all trading at new highs implying clearly that the market preference has shifted out of the large caps. Recently Prashant Jain, the well regarded fund manager of Hdfc MF was quoted as saying that bulk of the inflow into MF had gone into the mid caps. Obviously that is the case. But Jain believes that for that reason the mid caps may not perform similarly in the months ahead and he expects large caps to deliver better returns. I would have a slightly different take from this. My sense is that money from investors will continue to pour into the mid cap funds (last year 8bn out of 10bn received was into mid cap funds) and this area would have no choice but to continue performing. No doubt the good stocks in there have already moved up rather well but that pond is wide and deep and there are still many more fish to catch. Hence I would continue to recommend keeping the faith on mid caps even as one looks towards select large caps to contribute handsomely as well.
As an exercise, I ran a check on the Bse500 list and found that about 90 names were in terrific trends that showed no signs of reversal. These have reached price zones between 500 and upward and many of them have multiplied several times from the lower prices they traded at a year or two ago. One can consider this as the list of stocks that have already built a great deal of wealth for people. But then I also found another list of 110 stocks where too nice moves have occurred but the amount of gains is still somewhat limited compared to the other list. I feel these stocks have considerable room left in them even from current levels. Of course they need to be vetted further for individual fundamental strength, valuations, ownership patterns, technical strength and potential for the future. This may lead to some names being dropped from the list but my expectation is that there would still be a fair number of stocks that will continue to merit attention. I also plan to check stocks outside of the Bse500 list to see if more names can make it to this list. It should be an interesting exercise that could result in creating a universe from where to we can pick future winners.
Coming back to the current situation, the first couple of days may be influenced by this Greece business but that may be mainly at the start of Monday then to be repeated during mid session when Europe opens for trading for a couple of sessions. I don’t expect this topic to influence our markets beyond this. Local or other events will then take over and the trends will flow in accordance with that. The levels for the indices mentioned have taken both the up as well as the downside into consideration and we are now ready for the market moves! Bring it on!
TREND TABLE UPDATE
There was a sharp increase in the bullish percentage stocks (up 10 points over the week) to 37.97%. The shift occurred out of both Neutral(down about 4 points) and Bear (down 6 points). So clearly the market has turned for the better as far as stock situations are concerned.
On a sector basis, I find that cement stocks were all improved as were many private sector banks. So these would be two areas to keep track of in the coming weeks. The most improved stocks were Dabur, IGL, Sks Micro, Ubl, Tvs Motors etc. Among the stocks that underwent some weakening were Hexaware, Hind Zinc and Jsw Energy.
From the last week’s stocks Bhel as well as Cipla managed to do decently for 1-2 day traders while Bajaj also managed to come thru after a couple of days of hesitation. All the three continue to look good for higher targets as mentioned and can be held if the market maintains upward action. Dabur was given for a first target around 288-290. But if it closes above this zone then a bigger move could be setting up and one should remain long for that ride as well.
AB Nuvo has been into a consolidation for long. On Friday we saw some upward action that was well backed by volume and momentum support. Reckon this will run further. But first check if market is good and if so dive into this one. If it doesn’t move quickly enough after buying, let go as well as the long sideways makes it a bit of a sticky stock too.
Hexaware seems to be under pressure all the time. Refuses to get up during rallies or quickly fails when it does rally. Dip zones appear to be around 233 leaving lots of room to the downside. In case of continued weakness below 253 can short this one on a swing or positional basis.