- Strong showing on Friday has shifted the odds to a continuation of the rise now. Value area of resistance on monthly charts of NF overcome.
- Bank Nifty rallies after good news flow and recovery in Psu names on short covering as well as long buying. Private sector stocks are reasonably well placed to continue. Event ahead on Aug 4 may keep attention focused on this index and it could lead the Nifty higher.
- Pharma selling quickly arrested and sector is back on the buying list. However, Metals continue to plumb the depths while IT is somewhat neutral.
- Mid and small cap stocks rally strongly as continued buying by domestic funds in this space continues unabated. This keeps the sentiment in good cheer.
- Option OI concentrations move higher indicating that the market expectations are for continuation of the advance.
- Trend table shows the number of stocks in an uptrend is increasing steadily, implying an improvement in the market health over time.
INDEX TRADE SUMMARY
- Fresh longs were signalled with the move up after the rolls. Continue build of longs suggested in both NF at current prices as well (stop 8460) and BNF (stop 18700).
STOCK TRADE SUMMARY
- Stocks to track this week would be Coal India, Amtek, Titan, Page, Bob, Exide and Just Dial.
The last letter was entitled “Trends at a tricky phase” and that was the case as the market struggled with the trends for a day or two, got the expiry out of the way and then on Friday cranked it up on the back of good news on the banking front. I had stated in the last letter that,” BNF may have hit some supports near 18190 already. Unless this low is broken in the BNF, further shorts in it may be avoided.” It was really the banks that provided the fizz for the NF to start moving higher. The proposed recapitalization of the banks announced by the govt on late Thursday and some clarifications on the same on Friday seems to have had an impact on the trends. In addition, a couple of results from this space turned out to be not half as bad as expected (Icici, Bob etc) and this led to short covering. More, during the rollover, it appeared that more shorts had been carried forward in this space. Together these were sufficient to move the market ahead. Pharma chipped in nicely, negating my view in the last letter that they were meeting with exits. Lupin, which was one of the worst affected last week sprang back with some vigor as did stocks like Dr Reddy that charged upward after the results. Glenmark results were over discounted by the market ahead of the event and therefore the market rebounded sharply there.
It was important for the market to see a day like Friday happen. For one, the volume and momentum support was a bit lacking during the advance, even though we had a nice 650 point advance in the Nifty. Sometimes, index figures can be so misleading! Therefore we did need a strong showing from the market not only to get the volumes flowing but also to get the momentum readings into a higher gear (most of them were languishing near the neutral). Even more importantly, the rise at the end of the week made this the seventh week of rise since the low and that puts the intermediate trend into the positive. With the Primary remaining up and the minor trend also already up, all it needed was for the intermediate to turn higher. We are on the verge of doing that if the index continues higher in the next week.
But I take heart from the position of the monthly chart where 8500 had formed as an important value area over the last few months. The strong close for the month pushed the index above this level and now all it has to do is maintain itself above these levels (largely) and we will be safe! Though the market had changed direction during the last dip, the trend never changed as the drop from the July high was a straight decline. The Bank Nifty monthly chart is almost similar to the NF and everything that I have stated for the NF holds good for the BNF as well. The Nifty sees some addition to the OI after the roll as well. During the roll the cost was steady all day implying that there was no undue pressure from the shorts. Call OI for August have shifted upward to the 8700-8800 levels, something of a definite shift from earlier months when it would seldom move above 8500. The Put OI concentration too has moved higher to 8200. On the BNF, the main event ahead would be the Aug 4 RBI meet. Expectations of a rate cut are certainly higher this time what with the oil and gold prices being down. If the Governor decides to skip, it would prove disappointing for banking stocks and perhaps even for the market. The BNF option concentration has now moved to the 19000 and 19500 levels. Many of the big guns in the banking space are out with their results already and hence any rise in the BNF would be purely a build up for the Rbi event. The chart of the BNF shown this week carries the Laguerre filter and RSI and we can note that the short length LagRsi has given a buy signal even as the long length remains in a buy mode. This can be treated as a fresh buy signal after a reaction in the index. 18300 is a recent value area and one can go long with a stop below that. Alternately, 19000 calls can be bought at current levels of 320.
Now, of course the expectations are for the month ahead. As ever, we have to be vigilant at the time the trend seems ready to run. Because it is precisely at this stage that it is most vulnerable. It has to find the extra legs to force the pace and there is no room for slackening. We are currently at that stage in the trend. So it is essential that the market move ahead this week. There may be slight pullbacks but now the 8330 low that we have created recently assumes importance as a trend trigger. Also, for the sake of stamping the approval on the trend, the NF must cross the 8650 high that it made recently. That is the two levels that we need to be watching out for in the days ahead. Ideally, 8450-70 should now begin to act as a good support zone on intra week dips. In the last advance the move got past the 50%R but stopped short of the 62R. Now, that is the next target zone, at 8715. For BNF that would be 19500. It is to be noted that the previous swing high stopped at the price cycle zone of 8650. Crossing of that would open up room till 8830 on the price cycle charts. On the BNF the dip of the last week to 18190 was bang into a price cycle support and the rise from there has already crossed the next cycle high and is currently into a cycle that has a resistance at 19000 and then 19280. The Nifty chart from the last week updated shows that the prices are once again approaching the breakout of the main resistance angle. On the Bank Nifty charts I find that there is a time cycle count (this was shown in the chart last week) is coming up for the 7th. So it seems like that the trend in the BNF may continue beyond the Rbi policy day. Follow the trend that emerges after the policy date.
The small and mid cap space is running at a scorching pace! Lots and lots of money is being made there by all and sundry. The respective indices of this space are at new highs and show no signs of easing off. Main reason appears to be the consistent inflow from mutual funds. I was listening to Nilesh Shah (Kotak MF) and his comment was most interesting. According to him, over the next few years, the buying from domestic funds would equal the current holding of equities of retail players!! Now that is something! It puts such a big cushion underneath the strong stocks that they would not go down much for a long time and every dip would see a new buyer emerge. The beauty of the mid and small cap space is the large number and the low ownership of the funds in these stocks. The first round of buying seems to be done and possibly the next round seems to be beginning. The first round sent the initial bunch of good stocks up by 2x to 10x times! Maybe we should expect something not dissimilar in the next bunch of good stocks. A simple rule of the thumb to follow would be to buy any stock that comes up with a good set of numbers and has been performing well over recent years. The demand currently is so large that fund managers will have to pick up the stocks as they come up for grabs. More, they have to show performance on a consistent basis, so you can be reasonably sure that the ones that are well owned will be bid up a lot more so that the ones that have been recently acquired get the time to rise up and shine! Makes for the best of both worlds for investors. Good stocks wont fall much and the new names will rise on fresh buying! Time for all of us to concentrate on the mid and small cap space with all our vigor.
TREND TABLE UPDATE
The number of stocks in the bullish list continued to grow and has hit 50% now. there were about 16 stocks joining the bullish list in the last week. Among them the ones that looked best to continue further included Coal India and Amtek Auto. Pharma stocks were seen improving and stocks like Auro, Divis, Dr Reddy were at the forefront while Glenmark and Lupin that were under some pressure in the last week looked to improve. Among the declining set were the metal names that sought lower levels yet and continue to appear weak. They can be targeted for shorts in case the market shows a tendency to drop or stalls in its uptrend effort. Tisco and Nmdc may be favoured for more shorts.
Jsw Energy continues to drop under long liquidation and may head to 76 levels while poor results are seeing Titan getting pressured. More room for decline exists in this name and it should be favoured for shorts. In the last week too I had mentioned that Page and Eicher are seeing some long exits and this continued in the last week and Page may see further drop.
Though there was a rally in the Psu bank stocks in the last week after the news flow, most of them are still stuck in a downtrend status. Emerging out of that would be BOB, Union Bank, Pnb, Idbi and Sbi. In that order. One can look at these stocks for longs in the bank sector in case they continue higher.
Among stocks showing unusual price action were Exide where we had a big downmove and an equally strong recovery. This happened near the 62% retracement zone and suggests some buying has returned to the stock. The other was Colgate where good news (good results and a bonus) were received with a mark down in the prices. Stock may drop further. Just Dial sprang up nicely from the former swing low area and moved on big volumes. Apparently the selling from two large FIIs is reportedly over and value buyers are back in the stock.
So the stocks to track this week would be Coal India, Amtek, Titan, Page, Bob, Exide and Just Dial.