Weekend Reading - Psychology Drives Markets!

Here is an entertaining story about how strongly psychology can affect a market. It is from the book "The New Gatsbys" - It takes place at the Chicago Board of Trade.Soybeans were sharply higher. There was a drought in the Illinois Soybean Belt. And unless it ended soon, there would be a severe shortage of beans. . . .
Suddenly a few drops of water slid down a window. "Look," someone shouted, "rain!". More than 500 pairs of eyes shifted to the big windows. . . .
Then came a steady trickle which turned into a steady downpour. It was raining in downtown Chicago.
Sell. Buy. Buy. Sell. The shouts cascaded from the traders' lips with a roar that matched the thunder outside.
And the price of soybeans began to slowly move down. Then the price of soybeans broke like some tropic fever.
It was pouring in Chicago all right, but no one grows soybeans in Chicago.
In the heart of the Soybean Belt, some 300 miles south of Chicago the sky was blue, sunny and very dry.
But even if it wasn't raining on the soybean fields it was in the heads of the traders, and that is all that counts.
To the market nothing matters unless the market reacts to it. The game is played with the mind and the emotions.

Nifty woes

Nifty has formed a rising wedge in Daily graph which is a bearish pattern to develop. Trades near resistance line around 5500. Breakdown below 5350 would signal a downtrend ahead, at least for short-term.

RSI is showing negative divergence –

14-Day RSI shows lower highs against higher tops in Sensex which is a bearish divergence. Any time such divergence is seen Caution is advised as prices may reverse their trend. In such formations a breakdown is normally awaited and 5330-5350 is a support area below which Sell signal would be clear.

SBI - Channels play

SBI has been showing many channels in recent past and below is a weekly graph for the same. Every time there is a break from channel, the trend reverses.

Now it is showing a rising Wedge which is a bearish formation and stock has been resisted at Rs 2500 levels which must be crossed to go higher. Stock trades at Rs 2430 and any break below Rs 2330 stock would reverse up trend. 

RBI policy to be watched on Tuesday 27 July and bill for Government cutting stake in SBI is pending Parliament nod as per news reports. Q1 results would be watched, technically weakness is seen in the stock which can impact overall market too.

Weekly Nifty Update 24 July, 2010 by Tanmay G Purohit

Nifty has closed at 29-month high and this week it was up 55 points at 5449. Gains were led by METAL and TELECOM stocks which bounced back after recent correction – TATA STEEL, HINDALCO, IDEA and BHARTI rose more than 5% each. BPCL fell 4% after reports that Government may not share revenue losses of Oil Marketing Companies for first quarter. Select banks – KOTAK BANK, PNB were top losers.

Q1 result season would end this week and important results would be – STER, NTPC, LT, RELIANCE, HINDUNILVR, DLF, M&M, JINDALSTEL, HERO HONDA, ONGC. The combined net profit of a total of 339 companies rose 25.5% to Rs 22428 crore on 17.8% rise in sales to Rs 152120 crore in Q1 June 2010 over Q1 June 2009.  Volatility may rise this week as traders roll over positions in the derivatives segment from July 2010 contracts to August 2010 contracts.

India's merchandise exports rose 30.4% from a year earlier to $17.75 billion in June, imports grew 23% to $28.3 billion and deficit is widening faster than exports which is a worrying sign.

The annual monsoon rains were 17% below normal in the week to 21 July 2010, improving after a 24% deficit in the previous week, the India Meteorological Department said on Thursday, 22 July 2010. The seasonal monsoon rains during 1 June to 22 July 2010 were 12% below normal, the weather office added.

Mutual Funds have been net sellers for quite some time while FIIs have been buying Indian stocks - Foreign funds have bought net Rs 6053 crore this month so far, till 22 July 2010, as per data from the stock exchanges while Domestic funds have sold shares worth Rs 3539 crore in the same period.

The food price index climbed 12.47% whereas the fuel price index rose 14.27% this week and Prime Minister's Economic Advisory Council C. Rangarajan said fertiliser subsidy bill must come down and diesel prices could be freed once inflation begins to come down.

Monsoon session of Parliament to start from Monday 26th July and it is expected to be an active one as matters like fuel price hikes, rising inflation, Bhopal gas tragedy and Indo-Pak talks come up for discussion. The key event this week is the RBI's quarterly policy review on Tuesday, 27 July 2010 - Analysts expect another 25 basis points rate hike aimed at anchoring inflation expectations which looks already discounted in the market.

TELECOM stocks IDEA, BHARTI, TATA COMM, ONMOBILE, MTNL have underperformed but now look good for short-term rise. POWER stocks NHPC, NTPC, NEYVELI, PTC, ADANI POWER and JSW ENERGY are safe bets for investors and these stocks may not correct much if markets start falling. ADANI POWER, NHPC and SHRIRAM TRANSPORT are included in F&O and these stocks would remain active in short-term.

Technical View:
Nifty has closed comfortably above 5400 and it would remain strong as long as 5350 is maintained. This breakout if sustains, can take Nifty towards 5525/5640 soon. Regular profit-taking is advisable with many events lined up this week such as F&O Expiry, RBI Policy and major results.

Stocks looking good: JSW ENERGY, JYOTHY LAB, SATYAM COMP
Weak Stocks: APOLLO TYRE, HDFC, RCOM 
Supp 5350/5294/5210 Res 5525/5640/5700

JINDAL STEEL & POWER - Confluence of bearish patterns

A technician has to be cautious about longs when we see bearish patterns and double alert when there is a confluence of bearish formations. The example below would illustrate my point:

This is Daily Chart of JINDAL STEEL & POWER which is listed on NSE. As we can see the stock was having a swift up trend but the trend line got broken and stock has gone into consolidation mode, moving in a range. This is a rectangle pattern which is both a “Reversal” as well as “Continuation” pattern i.e. prices may break down and reverse the uptrend OR if the break out to the upside, the previous trend of higher prices would continue.

Rectangle also indicates prices moving in a defined support and resistance level and moving below or above that with volumes drying up and indecision increasing as pattern develops further.
Now this stock has more interesting things to note – There was a gap down day just in the middle of the rectangle which hasn’t been filled yet.

Also we see a bearish Head & Shoulders formation inside the Rectangle; the H&S is yet to break down though. Rs 600 has been like a Steel support for the stock and if it closes below this level for 2-3 sessions it would be a breakdown from both Head & Shoulders as well as Rectangle pattern.
If the breakdown below Rs 600 materializes, downside target can be below Rs 480-500 for this stock after that.
PDF : http://www.4shared.com/document/Kqu3lh1T/JINDAL_STEEL_200710.html

Weekly Nifty Update 17 July, 2010 by Tanmay G Purohit

Nifty has closed 41 points higher for the week at 5393 and REALTY, BANKING stocks led the gains. UNITECH shot up 9% while DLF 8% while good results from AXIS BANK followed by 6% gains in the stock. TCS results came above expectations and stock rose nearly 8% this week. OIL& GAS stocks saw profit-taking after Government announcement that it may bear 50% to 67% of the total revenue losses to be incurred by state-run fuel retailers this financial year on selling auto and cooking fuels at discounted prices and it has raised question about Government reform process with no free pricing in Diesel allowed – BPCL -7%, GAIL -6.6%. AUTO stocks were on the losing side after Nissan introduced their small car “Micra” – M&M lost 5.4%, MARUTI -3.5% and more selling pressure seen in those stocks. INFOSYS results were below expectations and stock fell 3% this week.

IIP data came below expectation at 11.5% but double-digit growth itself is an achievement; as base effect will keep pressure and single digit growth from July is widely expected.

Global coffee exports declined by more than 8% in the first eight months of the current coffee year to 61 million bags of 60 kg each, according to the International Coffee Organisation but Exports from India increased by 42.64% to 2.9 million bags in same period – positive for TATA COFFEE.

STEEL prices again correcting Globally would pressurize Indian companies TATASTEEL, SAIL & JINDALSTEEL are looking very weak.

Private equity (PE) firms have offloaded stakes worth $1.46 billion in the Indian companies during the April-June quarter this year, reveals the data by VCCEdge indicating higher valuations are driving divestment opportunities more. India’s monsoon rain in the June 1-July 14 period was 13% below normal, the weather office said and it was below 16% average in June. All India rainfall deficiency of 24% during the week ending on 14 July, 2010 and Met department says no quick revival is seen, with Food inflation already rising to 12.81% many experts belive RBI can soon swing into action by 25basis point hike.

TEXTILE stocks are showing positive formation on graph – ALOK, ARVIND and SKUMAR can return 6-8% quickly, China has ended the Yuan-Dollar peg and its recent appreciation would make Chinese textiles on par with Indians which will be beneficial to the sector. Select TELECOM stocks show more rally in short-term – ONMOBILE is a very good investment stock while TATA COMM is bottoming out.

Technical View:

Nifty has failed to sustain above 5400 this week and it shows a bearish Head & Shoulders formation in intraday graphs. If it can cross 5420 that would be bullish but failure to do so and breaking below 5350 can bring more selling into the markets, we may see 5250/5150 also being reached in that case.

Stocks looking good: EKC, IDEA, ALOK TEXT

Weak Stocks: ULTRACEMCO, CUMMINS, JINDAL STEEL & POWER

Supp 5345/5210/5135 Res 5425/5525/5600

Weekly Nifty Update 10 July, 2010 by Tanmay G Purohit

Nifty has closed positive by 115 points for the week at 5352 and it is a strong weekly close as Nifty closes in on yearly highs at 5400. TELECOM stocks were big gainers in the week – BHARTI AIRTEL +16%, IDEA +15% after Credit Suisse upgraded the sector. BPCL rallied 6% after continued rally in Oil & Gas stocks while INFOSYS hit all time high ahead of results on Tuesday. ACC was top loser in the week with 3.5% loss followed by HUL and NTPC which lagged the overall market.
Monsoon activity has picked up in the last week and covered the entire country on 6th July, 9 days prior to its normal date of 15th July. Cumulative rains in the country from 1 June – 7 July were 10% below normal. Total rainfall was 204 mm compared with the normal rainfall of 226.5 mm for the period.
Important trigger to watch on Monday would be IIP data for May - Industrial output is forecast to grow 16% in May from a year earlier, lower than an annual growth of 17.6% in April, the median forecast of 22 economists shows.
Nifty is up nearly 3% this year so far and Q1 results have already started. Next week important results would be INFOSYS, EXIDE, HDFC, AXIS BANK and CHAMBAL FERT. Going by up move so far, results Euphoria looks already priced in and so even good results may see a negative reaction like we saw with INDUS IND BANK. INFOSYS is trading at all time high on expectation that company would beat its Guidance which it has normally done, any disappointment and downgrade in Guidance due to Salary hike or Europe Factor would be Negative for whole IT sector – INFOSYS results due Tuesday 13 July.
Domestic steel prices may come down by as much as Rs 1,000 a tonne this month due to sluggish demand mainly from the construction and infrastructure space, Steel Secretary Atul Chaturvedi said and too much production in absence of enough demand may drive prices of Steel in US down as per experts.
India's power output grew an annual 3.43% in June, the lowest increase since last November, with thermal generation constrained by limited availability of coal, the Central Electricity Authority said –Power stock PTC looks good for more upside after company plans to list PTC Financial Services, ADANI POWER near all time high and can rise more in days to come.
India recorded the highest rise in natural gas output worldwide in 2009 after Reliance Industries' eastern offshore KG-D6 field came into production, global energy giant BP Plc said. RIL began gas production from the Krishna-Godavari basin in April 2009 and its 60 million standard cubic metres per day output led to a 75 per cent jump in natural gas availability in the country to 140 mmscmd.
The Reserve Bank of India is likely to raise interest rates again in its quarterly review on July 27, a new survey found, and rates at the end of the year are likely to be higher than forecast before last Friday’s 25 basis point rise. The majority of analysts surveyed in the poll expect rates to be 25 basis points higher on July 27 than they did in a similar survey last month.
Mumbai-based Realty stocks are looking very good for short-term rally and HDIL, IBREALEST, ORBIT CORP, MAHLIFE can gain 6-8%. ICE Arabica Coffee futures edged up supported by a soft dollar and remained within sight of a 12-year peak, while white sugar was at a four-month high, buoyed by strong prompt physical demand. India's farm minister has invited sugar millers to discuss lifting state controls on the sweetener, raising hopes of reform in one of the most tightly regulated sectors in the economy. TATA COFFEE is the stock to watch and Sugar stocks may continue their rally.

Technical View:
Nifty has closed above 5300 showing a breakout and if it can sustain 5300 we may see 5525 as next target. Below 5200 if Nifty moves short-term traders are advised to exit as that would be a sign of failed rally.

Stocks looking good: IFCI, ONMOBILE, PTC
Weak Stocks: INDUS IND BANK, BHEL, INDIA INFO
Supp 5290/5220/5140 Res 5395/5455/5540

NMDC - Stock in News looks a good buy!

NMDC has come in many news items and stock looks good at current levels.

• NMDC is in talks with Nippon Steel and Kobe Steel of Japan for partnership in two steel plant projects in Karnataka and Andhra Pradesh.
• The state-owned firm will also be investing Rs.3,000 crore to set up a 12-million tonne per annum pipeline in Chhattisgarh to supply iron ore to its domestic steel customers. http://thehindu.com/business/companies/article503087.ece
• NMDC witnessed a jump of 80% in its first-quarter profit on the back of increased demand of iron ore from steel companies and a rise in prices. The company’s sales rose 90% to Rs 2,400 crore in the first quarter of the current fiscal. http://www.business-standard.com/india/news/nmdc-profit-jumps-80-sales-90-in-q1/400643/
• NMDC said it is in talks to buy coking coal mines from Kolmar in Russia to feed its proposed steel plants in Chhattisgarh and Karnataka. http://economictimes.indiatimes.com/news/news-by-industry/indl-goods-/-svs/metals--mining/NMDC-in-talks-to-buy-coal-mines-in-Russia/articleshow/6139481.cms

About the company:

• NMDC is a PSU company involved in exploration of iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc. NMDC is the largest iron ore mining company in India with 31.7mt capacity and 1.27bn tonnes of 2P reserves (Proved plus Probable).
• NMDC has the only mechanized diamond mine in the country with a capacity of 1.00 lakh carats / annum at Panna (Madhya Pradesh State).
• India's growing infrastructure needs would need more consumption of steel and demand for Iron Ore would remain stable which can benefit NMDC.

Stock has been in a strong downtrend for nearly 6 months and now (CMP Rs 264) has gone sideways. Move past Rs 275 would be bullish for short-term trend, investors can accumulate the stock in a small way for Rs 290-300 target.

Weekly Nifty Update 03 July, 2010 by Tanmay G Purohit

Nifty remained in a small range this week and it closed down by 31 points to close at 5237. Only stock-specific activity was seen and small / mid-cap stocks outperformed the indices. Government indicated intentions to de-regulate Diesel prices as well and as a result – BPCL +7.4% and ONGC +3.4%. IDFC rose 6.7% after company got status of Infrastructure Finance Company from RBI. POWER stocks became active this week – RPOWER +4.3% and NTPC +3.2%. CAIRN, GAIL, STERLITE IND were top losers from Nifty as they fell more than 4% each.

India's infrastructure sector output grew 5.0% in May from a year earlier, lower than an upwardly revised annual growth of 5.4% in April, government data showed; During April-May, output rose 5.1% from 3.5% a year ago. The infrastructure sector accounts for 26.7% of India's industrial output. India's refinery output rose 7.7% to 3.25 million barrels a day in May, the highest level since July 2008, as the expanding economy continued to boost demand and further fuel price deregulation would benefit the sector more. MRPL and GSPL look very good on charts – MRPL closing past Rs 84 is a major breakout and target of Rs 94 can be near after that while GSPL closing above Rs 103 for 2-3 sessions would pave way for Rs 125 in the stock.

Nuclear Power is in news once again after India signed a deal with Canada last weekend and Japan too has started negotiations toward a civilian nuclear pact with India, before Japan was concerned about India not joining the Nuclear NPT – beneficiary stocks would be APIL, AREVA, ROLTA, HCC and LT.

India's fiscal deficit from April to May was Rs 1.01 trillion ($21.7 billion), or 26.5% of the full-year target, the government said. India’s trade balance continues to worsen; May registers the largest trade deficit in 17 months of USD 11.3Bn as imports outstrip exports. India has become more vulnerable to slowdowns and financial crises abroad as foreign trade plays a bigger role in the economy – Foreign Trade represented 35% of GDP for the year to March 31, 2008, up from 21% a decade earlier, RBI said.

On Friday, RBI has raised Repo and Reverse Repo rates by 25bps each and Banks would be negatively affected. Mutual Fund AUM have dropped by 16% in the month of May and it indicates investor nervousness about Indian Equities after stretched valuations.

Purchasing Managers’ Index data for major economies of the world such as India, China, Korea have been bad and it may keep investors nervous about growth prospects in near future and though Met Dept is very positive about Monsoon this season, so far the rains have not been optimistic –annual monsoon rains for the week ended June 30 were 25% below normal. Auto sales have been brilliant once again for May but Hyundai has posted 3rd successive monthly decline in domestic sales to 10-month low, soon base effect would play its part for the sector and rising input prices can pressurize bottomlines of AUTO companies –margins and market share may be affected by increasing competition and entry of many new models.

CAMLIN at Rs 35 looks very good for an investment target of Rs 42-45 in a year’s time. As per chart stock trades in all time high territory. Indian disposable income increasing and more focus on education would benefit the stock. GLOBUS SPIRITS looks good for 6-8% gains in short-term.

Technical View:
Nifty has closed lower for the week but so far it has maintained crucial support at 5200. Nifty has broken up channel and now trades in a down channel indicating weakness, as long as it is unable to cross 5360 the weakness would persist and if below 5200 sustained move is seen more selling is not ruled out. Global markets are hitting more than 2-and-half week lows while Indian market still outperforms but history tells us that our markets have reacted late but soon they have fallen more than global peers so if below 100DMA 5116 sustained move is seen we may conclude that correction has once again started. Year 2010 as we see would be a year of negative and so far we haven’t seen large gains in markets. Nifty would have to cross 5400 soon to manage stronger rally but global risk is too much right now and rewards don’t favour so much risk, so only stock-specific approach is advised.

Stocks looking good: JUBILANT FOOD, MRPL, IDBI
Weak Stocks: M&M, JSW STEEL, WIPRO

Supp 5200/5138/5005 Res 5330/5395/5480