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TCD Looming….

TCD looming….

EXECUTIVE SUMMARY

  • Rise look set to continue and the push past 8400 levels ought probably occur today.
  • Bank Nifty surged ahead of the Nifty and still looks good for more, this time pushed ahead by renewed action in the private sector counters.
  • IT index is still deciding its course of action. We wait.
  • TCD for the month has been updated in this issue. We are currently trading into a TCD zone and placed at a high in the index. May warrant some caution, perhaps?

INDEX TRADE SUMMARY

  • We are currently long in both NF and BNF. Can still add further NF if rise continues for target 8460.
  • IT index is near resistance and hence check index move as well as leader stock moves before deciding on a trade as discussed inside.

STOCK TRADE SUMMARY

  • Updates on earlier trades suggested.

INDEX REVIEW

The market was expected to surge but seems to have chosen to bide its time in doing so. Thus we saw the Nifty putter abut a bit, flirting all day with the 8400 mark but never quite making past it. Thus the option traders would have held back their action. I was quite bullish about the prospects of the Bank Nifty and that index surged past earlier day highs, setting off fresh buy signals (our earlier target resistance was 17220) and most of the component stocks did well. Thus readers should be long in the Bank nifty for sure. Longs in Nifty could also have been built as it continued past the 8360 levels. We have a higher target for resistanace anyway and since the stop is reasonably well defined (8330 being the nearest) longs could also have been created in this index but would not have been profitable like the BNF was at the end of the day.

The IT index churned around the 11400 mark and since the IT majors were not bearish and Hexaware results did the trick for the stock (it was given as a breakout candidate in the list on Wednesday) and helped to sustain the levels yet for the IT index. The opinion in this index is not changed and I continue to look for evidence of further gains in stocks in this sector before venturing long into the index.
In this context, Infy I think would probably hold a key. Talking to an IT analyst, I learnt that the reason Infy is still in good form is because they have built in a lot of buffers into their business and the company is expected to show margin improvement even in a normal environment. Compared to this, my IT analyst friend says, both TCS and HCL Tech lack the buffer as they are operating at full capacity and hence only an environment improvement can lead to growth in numbers there. The market too is clearly exhibiting this differentiation and it is really TCS and HCLT that is keeping the lid on the IT index moves while Infy and TechM are helping to push it higher. So, you see, it does not matter whether you know the possible reasons or not, a proper study of price action will show you what is the market’s preference and its thinking. Finally that is what matters in making money!

So the overall situation in the indices remains unchanged from the last letter as far as view is concerned. We are currently long in Nifty as well as Bank Nifty. The respective stops should be in the region of 8330-8285 and 17220-17100. We still await market action to tell us what to do with the Cnx IT.

Trend Change Dates for November
New month has commenced and I have not outlined the trend change dates yet. Looking at the seasonal patterns, November, I find, has a tendency to form highs in the first week or so. We are currently arriving at a high into this time zone. Chances of a making a high here then? I would therefore watch the highs made today (Sgx is trading better as I write this) in the following week. If the market makes a high around here, then chances are that it may drop till around the 20-22 time window. It can then rally back up some, retracing some of the ground lost intra month.

Problem is that November is showing itself to be a bit choppy in terms of trend change dates. If the top is not made here, then I would look at around the 13th  and if the rise continues then the high can be formed around 20th. The latter is a lower probability scenario. So lets first get done with the current week high and see how matters flow in the week ahead.

What we need to do is to check price action around the turn dates to see if we get some patterns of reversals. Market is nothing but manifestation of price and time relationships. We are the ones who assign various ‘reasons’ to why something happened the way it did.

Real estate stories.

There is a lot of talk about real estate stocks in the market . I keep hearing about how big moves are in the offing for Unitech, Hdil and IBReal. Fact is, I have been hearing this expectation for several months. In all that time, all these stocks have done was go down some more. Every now and then (like last week) they will move up some and the stories would be back again! I have no idea if there is any truth in them whatsoever. But I keep wondering as to why there is no story in, say, Peninsula Land or DLF or Omaxe or some such. They too are real estate stocks. Why these three only? It seems to me be a case of even more distribution than what has already gone on. People are such suckers for real estate. All they can see is the inflated prices and since it is connected to something very tangible, the urge to believe that story is ever so much more.

But what is the reality of Realty? Today’s Economic Times says that there is 815 million square feet of unsold space in 6 major cities. It is the highest unsold inventory ever till date! Does Unitech, IB Real and HDIL have some magic formula (known only to them, mind, not to other developers!) that will help them beat this fact of the industry? According to FirstPost, six (only 6, forget the others!) listed companies have eroded 3.3 lac crores of investor wealth by loss of market capitalization! Just to put that into perspective that would be the market cap of many a company and a high percentage of the market cap of many a large cap!!

Still feeling bullish about Unitech/Hdil/IBR? Still want to believe the stories? Well here is some more statistic for you- Unitec lost 98% of its high price and has recovered 5.3% of its fall; IBReal lost 95% and recovered to 8.4% so far; HDIL lost 97.5% and has recovered 8.1%. DLF has lost 92% and is still falling;  most other counters are similarly placed. The few exceptions (Ashiana, Kolte Patil etc.) don’t really change anything.

If you are still bullish, read my blog (The Real Estate Ponzi scheme).

Ignore the stories. Look at the charts. If there is some short term buy signal, engage in the stock. When the signal comes to exit, do that. Don’t get locked in with the stories. If they had any truth, we would have already seen the money move into the stocks. Market knows everything.

Results are better and should help the bullish cause.While everyone agrees that much of the upward price action we are seeing is owing to some wind velocity created by expectations from the Modi govt, a piece of news analysis that I came across is encouraging. Firstbiz reports that 159 companies in the BSE 500 that have reported their quarterly results, the combined profitability of the companies (with exception of Nbfc and Banks) is at its highest in 6 quarters!! Interestingly, the combined revenue is the lowest in 6 quarters! So what contributed to the stellar rise in profitability? The answer is, besides 18.2 percent rise in other income and a 7.8 percent decline in interest cost, the low base effect also contributed to the higher growth in profitability. What is more commendable, though, is the improvement in profit margins. Operating profit margins of these firms rose by 70 bps to 18.2 percent, while net profit margins jumped 260 bps to 10.7 percent from the year-ago quarter.  But before you get all charged up, let me remind you that the combined market cap of these 159 companies accounted for just 43 percent of the total market cap on the BSE.
Still, it is a good indication that we are on a good wicket right now. If interest costs reduce with the next RBI action, then that ought to give a nice boost to send the indices to newer orbits.

Annual Projection holders, the power of cycles and WD Gann methods had already foreseen this for you way back in Feb 2014. It is just that reasons and explanations are coming together now! Brings to mind an old technical analysis adage: Patterns form first and the news follows later!!

Tell that to those who think TA is similar to reading teal leaves! We have the money in our pockets, they have dirty cups with tea stains 

STOCKS

Review
Divi’s Lab continued to drop further but should probably meet support near 1702. If below that, then give up bullish view for now and revisit later.
ICICI BANK could have been added as discussed. Continue to hold if it can sustain above 1680. Then can look for 1737 as next target.
LIC Housingflourished. It was clearly stated that it would be a positional play. 383 is the first of targets and has been hit. Tighten stops or take some profits. Next is 392. Only crossing of that can set up further targets.
Ranbaxy: Recent letters tagged a buy and it has now triggered a further buy above 655 and you should now be long. We are just a whisker away from a new high at 669 (which is the first 45 degree offset of a new upward cycle). Immediate targets are 705 and 717.

Tisco wilted when it had to turn stronger. Exit longs if still held.
Tata Comm Continue to hold now with a revised stop at 409. Add more if prices show willingness to rise again today.

From the list given on Wednesday, the ones in buy mode (Auro, Apollo and Axis) continued higher. Still look good for more.
Clear breakouts occurred in Hexaware, Glenmark and IFCI. All three continue to look good for more.
Continue to look for the other breakouts in the days ahead.
Errata in Siemens : the breakout price should be 890 and not 1018 as given.

 

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