Reading stock charts

Our Investments for Good Quality Life: My personal experience

2012-01-09T11:41:00.000+05:30

Having reached the middle age, one tends to introspect on how life was spent so far and how it can be utilised in a even more effective manner. I have hence conducted a small audit and have identified four critical things to enjoy a happy and fruitful life. Your comments are welcome.

1. Health. One must enjoy a healthy, long, disease free and blissful life. This is the bottom line. All efforts are towards achieving this. Healthy, long and disease free life can be earned by slowing down pace of life thereby reducing stress and hence ageing process. Regular exercise is essential for this aspect. Open air exercises, fresh air and sunlight, adequate sweating and deep breathing are a must.These habits are to be formed. Once formed they bring in small but effective changes in our body systems naturally. Adequate deep sleep is essential for good health. Specially half an hour siesta post lunch. It is heavenly.

2. Relationships. Investing in deep and bonding relationships is essential for a blissful and complete life. Spouse, children,parents,uncles and aunts,cousins, nephews,nieces, coursemates, friends,acquaintances......

The list is long. What is essential to note is that each relationship has an unwritten Emotional Bank Account (EBA). We can not withdraw more than what we deposit. We need to invest in EBA of each relationship on a regular basis and withdraw hardly ever from it.

3. Bank Balance. One must have adequate bank balance to enjoy good quality life. How much is enough is dependent on one's 'wants', not 'needs'. Needs are really not very much. It is the 'wants' that create the desire to amass wealth. As long wealth is created ethically, it gives you peaceful sleep. Unethical wealth creation goes against our very aim of 'blissful life'. Always remember, 'money is a good servant but a poor master'.

4. Time. All the above mentioned factors are governed by one important element. Time. We live life in the present moment. This moment can not be stored, recreated,carried forward. We must be masters of our own time. Let no one else command our time more than what we allow. Life is to be enjoyed this very moment, every moment. While we do not have control over flow of time, we must have control over the quality of our time. This is possible and must be exercised.

Thus good health, warm relationships, strong bank balance and free quality time are most critical elements to enjoy good quality life.

Wish you all a very long,healthy,wealthy and blissful life.

rgds

Vibhas

Capitulation? Or is it darkness before the dawn ??

2011-12-16T22:06:00.000+05:30

Dear readers,
It has been sometime that I wrote my thoughts here. Paralysis of governance and economic crisis in the west has compounded our problems. Hence our equity markets are going lower day by day. Pessimism is galore. Analysts, media are expecting NIFTY to tank to 3800....! There is blood bath on the Dalal Street. No stock is safe haven and we do not know where and when bears will strike.It is in such times that great investments are made.

My questions are: Is India worse off than in 1991 or 2008? No.
Have Indians lost their zeal, tenacity and ability to work hard? No.
Are we short on resources and manpower? No.
Has Indian Industry lost its competitiveness? No.
Are Indian banks burdened with so much debt that they are likely to collapse? No.
To most questions the answer is a resounding 'No'.
Then why are Indian stock markets collapsing? The answer is lack of depth. Even small amounts of concentrated selling can bring down our markets in a jiffy. We have seen it earlier and must learn our lessons. There is no need to panic at all. Today's sell off could have been triggered by some such concentrated selling followed by margin calls and 'stop losses' being hit.
There are so many stocks available at mount watering valuations. No research required. No financial adviser required. Save on all such costs. Just buy them in a staggered fashion. And hold them for a year or so.
Trading in F&O is dangerous specially in this kind of volatile market. Cash markets and delivery based buying or selling is recommended.
Lastly one point to remember. When there is strong momentum specially downward momentum, no levels/supports can be assumed or predicted. It is a waste of energy to even look at technical charts. Buy stocks at reasonable valuations and you will not repent. These investments are likely to reward us faster than the ones made earlier.

Happy investing.
regards
Vibhas

Paralysis of Governance

2011-11-01T10:59:00.000+05:30

Do read the following letter.
We discussed this topic in this blog many times before.
rgds
Vibhas

http://timesofindia.indiatimes.com/india/Azim-Premji-slams-govt-paralysis/articleshow/10562289.cms

BANGALORE: The complete absence of decision making in the government, coupled with corruption, is the biggest challenge facing the country, Azim Premji, chairman of IT majorWipro, said on Monday.

At a press conference to announce the second quarter results of his company, he responded to a reporter's question on what he thought were the country's biggest concerns. "There are governance issues, but we are hearing a little less of that compared to a month ago. There is a complete absence of decision-making among leaders in the government," the billionaire entrepreneur said.

"If prompt action is not taken, the country will face a setback. You must appreciate how serious it is."
Last month, Premji was among a group of eminent personalities who had in an open letter to national leaders expressed concern over the governance deficit.

"We are alarmed at the widespread governance deficit almost in every sphere of national activity, covering government, business and institutions, the group had written.

In a letter to the PM last month, a group which involved him wrote, "Widespread discretionary decision-making have been routinely subjected to extraneous influences. Possibly, the biggest issue corroding the fabric of our nation is corruption. This malaise needs to be tackled with a sense of urgency, determination and on a war footing." Others in the group included Keshub Mahindra, chairman of Mahindra & Mahindra and Deepak Parekh, chairman of HDFC.

The group also wrote a letter acknowledging the existence of a "strong nexus between certain corporates, bureaucrats and power-brokers" and suggested a number of reforms in areas such as the judiciary, police, land acquisition and environmental clearances.

Asked about the government's reply, Premji said, "As far as the open letter is concerned, the reaction of the PM has been positive to it in terms of taking it on record."

Happy Deepavali

2011-10-27T11:22:00.000+05:30

I have been writing this blog since Oct 2006. That is five years of tracking this market. We have been through a bull rally in 2007 followed by the bust in Jan 2008. Market bottomed out sometime in Mar 2009. It then rallied again till Deepavali 2010. Since then it has been correcting till this Deepavali. I have a feeling that the correction is almost over both time wise and price wise. We are all set for a new bull rally from now on. Macro economic indicators suggest that rate tightening cycle is about to reverse sooner than later. Inflation should also be down. Market participants will look at indices more rationally now on. Fear determines the short term trend and hence the downtrend. It is in these fearful times that we do not need to research for good stocks for they are also available pretty cheap.

From now on I shall be writing regularly. At least one post a week. So do visit this blog regularly.

Wishing you all a very happy Deepavali and a prosperous new year.

rgds
Vibhas

Market Review

2011-08-15T14:19:00.000+05:30

It has been a long time since I wrote my previous post. I could say that nothing much has changed since then and hence the delay in my next post.
If US debt rating has been reduced, it was nothing out of the ordinary. We knew it had to happen. Market reacted to it and has absorbed that well. US has a problem but it is not going to default on its payments for sure. US dollar is going to be weak in the long term but not in a hurry.
Interest rates are very high in India and could go up higher. Market has that digested too. We also know that interest rates are going to cool off sooner than later and that would bode well for our economy.
Oil and other commodity prices have reached higher levels but crude is going to stabilise at current levels if not lower. Slow American growth means lower oil prices. That is good news for inflation in India.
Our government is showing some action on public policy front. I expect strong reform action to appear in the next quarter.
Considering these factors I am buying good stocks at bargain prices. Things are looking up and a patient investor is going reap good dividends in a year's time-frame.

regards
Vibhas

Long term investing

2011-07-02T09:52:00.000+05:30

Stock market is 'the' place for long term investors. In Indian markets sentiment has always been the key driver for price fluctuations. Hence someone who is buying in the cash markets has always benefited from volatility. Our stocks in focus have been HDFC, HDFC Bank, SBI, Larsen and Tourbo. Look how their prices have moved within almost a 30% range without any apparent change in fundamentals. ITC is another great story that is on its own bull market irrespective of market sentiment. Titan appears to have settled down in a range for now. NTPC has been beaten down but is a good long term bet always. Petronet LPG is a safe stock to buy and steady the portfolio. IDFC has been beaten down too. It provides a good entry to new investors and averaging opportunity to old ones. SBI is starting its recovery. From 3500 it had dropped to sub 2200 levels. These are all good stocks which gave us opportunity to buy at different points of time. Timing is always a tricky issue. No one can time the market correctly consistently. One may get it right few times but would also lose out on equal number of times. So smart investing is buying stocks at their support levels and taking out money only when it is needed and and when stocks are at their important resistance levels. A look at one year chart would give good indications for that.

Let us now see how the result season pans out. Till then pick up gems that have not yet moved up smartly.

rgds

Vibhas

Monsoon rain should bring some cheer !

2011-05-25T12:48:00.000+05:30

Our equity market is moving in a trading range. As mentioned in the last post, 5300 is holding on as a good support. On geo-political front we had the Osama killing, terrorism in Pakistan, unrest in Middle East and our very own election results. People voted out corrupt and inefficient governments and voted for development. Major change in West Bengal was caused by 84% voting. This is good news for our democracy. What must be noted is that votes were allowed to be consolidated and not divided (unlike what happened in 2009 General Elections and in 2009 Maharashtra Assembly elections). When political parties stand united and accept mutually supporting roles they are well supported by wise voters.

On the economic front RBI raised the interest rates again sacrificing growth for inflation control. Petrol prices have risen but diesel and LPG decontrol is still awaited. The IMF chief had to resign for 'non economic' reasons. Greater the rise deeper the fall. Dollar is still in a downtrend and hence commodities are becoming costlier by the day.

India and Indians are growing in strength day by day. Our economy is doing well and will grow at 7% at least despite high inflation and high cost of funds. Markets will reflect this reality in their charts. Hence they are not falling below 5300 or 17500.

Change is the only constant in this universe. Nothing stays either good or bad forever. Hence one day this high inflation is going to reduce, cost of funds is going to reduce and growth is going to resume. Till then accept the pain and buy on dips. Industrious Indians will shine in this changing world. The center of economic gravity is for certain shifting to India and China.

rgds
Vibhas

NIFTY view

2011-04-16T22:02:00.001+05:30

Nifty has found a good support at 5300. Reading RSI, MACD and ADX we realize that market is expecting a gradual rise in the index. Overall sentiment is positive within the trading range of 5300 and recent highs. This is a text book situation of 'buy on dips'.

Jan Lokpal bill is likely to be the first change effected by interaction with civil society. Our political leaders think that once they are voted to power they need not take any suggestions from the citizens, the real masters of this nation. Anna Hazare's fast and the whole-hearted support by youth speaks well of the assertive nature of the citizens. No political party can afford to ignore it.

Result season is ahead of us. Infosys has tanked by 10% because their original team is gradually leaving. Let us see how HDFC, HDFC Bank and Larsen perform. That should decide the next move of the index.

rgds
Vibhas

Bottom and Top Formation

2011-03-25T14:02:00.001+05:30

While reading stock charts, one must make it a point to check the bottom and top formations of that stock/index. These define the trading ranges of the stock/index. The present negatives/positives are priced in by bulls and bears and they settle down at a price where stock/index trades in a very narrow range. This goes on for a long time and then either the bears or bulls get nervous and start unwinding their positions. If bears start covering their shorts then bottom is in place. It is time to go long. If bulls close out their longs then a top is in place. It is better to sell out or go short (or do nothing if you are an investor).

Our Nifty chart is showing signs of a bottom being in place. Trading is in a narrow range. There is an up day followed by a down day. But gradually bottom is moving up. I think it is time to be optimistic and go long. Many blue chips are available are attractive prices. They may soon start their rallies.

rgds
Vibhas

PS. I have been slow in updating this blog because bottom formation was to take place. As rally starts I shall write more often. So please check this blog everyday.

Risk taking and Risk avoiding

2011-02-28T12:51:00.001+05:30

When we buy stocks we take the risk for future profit or loss in that company business. Thus today's buyer benefits from future growth. This is when we have a longer holding period. If the company prospects are good then the seller factors that growth in the price and sells us the security at a premium.

Now let us see the reverse. When sentiment is bad and growth outlook is pessimistic, it is the seller who wants to sell out the security thereby de-risking herself and wanting cash in return. She would also be wanting to buy the security at a lower level in the future.In this case the buyer would factor in pessimism and offer a lower price. That is what we call discounted prices in stock market parlance.

This is what is happening in Indian stock markets for the past two months. A not so clear growth outlook has forced the participants to take a bearish view of the markets. It does not mean that India is not growing well or that there are some structural problems within the Indian economy. For a cash market investor this is an ideal opportunity to buy good blue chips at good valuations. Indian economy has the resilience to outlive rising crude prices. It is an opportunity to turn India into a 'natural gas' driven economy.Indian innovative spirit will shine in economic adversity.

rgds
Vibhas

Fear, Greed and Low Hanging Fruit

2011-01-16T13:55:00.001+05:30

It has been a good correction so far. Stocks have corrected lock, stock and barrel. We had approx US $ 20 billion inflow in 2010 and a mere US $ 1 billion outflow so far in Jan 2011. Even with that outflow our markets have corrected by over 10 % from the top. It means we lack depth in the market, whether when it is going up or down. There was no need to reach Nifty 6336 and now there is no need to reach 5400. If someone needs money then he needs to sell whatever be the prices. Good opportunities are created in such panic selling scenarios.
So let us not focus on Sensex/Nifty support levels. They do not matter and can not be predicted. If stocks that we want to buy have corrected by more than 20% from their tops then we could nibble at them in stages. This is not the market to sell; this not the market to buy aggressively; but this is the market to enter in stages for sure. It is discounting far too much bad news in the prices. So we have a situation where in there are some very interesting low hanging fruit. Only in stock markets can you get such bargains without even trying. Dance in steps with the market, not out of steps with the market. Use this pessimism to buy good stocks at cheaper prices. We will not regret.

rgds
Vibhas

Larsen and Toubro

2010-12-22T09:12:00.003+05:30

Larsen and Toubro ( weekly, 3 years)

I have been away from my blog for a while. Reasons are other commitments and nothing much significant to write about. We have discussed issues like corruption in high places, poor governance as major threats to Indian equity markets. Those emerged in the past two months and markets corrected significantly. I am always happy when markets correct because that is when value emerges. Our all time favourites like HDFC, L&T, HDFC Bank and SBI have not corrected much in the carnage. Max to about 10 percent or so.
Corporates with good governance record and investor friendly attitude are likely to be favourites for deep pocket investors. As sentiment changes these scrips are likely to see good buying emerging.
In Larsen, I am expecting a price of Rs 3134. Time frame is never predictable in stock markets. Business growth can be predictable though.

My assumptions are:
1.With 30% annual growth it should take about two years for this target.
2. The resistance of 2172 will have to be crossed with good volumes for subsequent rise in the price.

Calculations are given below.
Rs 2172 and Rs 615 are weekly high and low over a three year chart as shown above.
Multiplying the difference with Fibonacci quotient of 1.618 and adding it to 615 gives me this value.

[{( 2172-615) x 1.618= 2519},{ (2519+615)=3134}].

Let us see how long it takes for this to prove right.

rgds
Vibhas

Democratic Governance

2010-11-18T11:53:00.000+05:30

Corruption in high places is at the core of our form of Democratic Governance. While a democratic system is not the best solution to a nation, but it the best form of governance wherein we can 'remove/change' our leaders. Note I am not saying 'punish' the guilty because our justice system is not swift and fearsome. Scams after scams have forced many political leaders to vacate their chairs. Even though we have not yet succeeded in prosecuting the corrupt but there is a change in perception.People are no longer pessimistic about the 'corrupt' getting punished. Our apathy and pessimism (about lack of action) is what the corrupt want. We,the common citizens,fail to question and fail to assert our sovereign rights. This is what breeds and nourishes corruption.

In my opinion we need to take swift and tough action against the top 50 corrupt leaders/officials in every field,send them to jail and confiscate their property to set the system right in the shortest possible time. This can be done. Money can be recovered because money can not perish. It has moved from one pocket to another.

This would be a turning point in the history of our young nation. Present events and the anguish caused by them are the right ingredients to initiate drastic changes. We must not allow the 'corrupt' to slow down the momentum. This is the need of the hour.

rgds
Vibhas

Stock Market is a tool to create wealth !

2010-11-02T16:29:00.002+05:30

Stock market is a tool to create wealth. Stock market, forex market,commodities market are all places where buyers and sellers speculate on the price action.Everyone has different strategies, holding capacities and time horizons. Every retail investor is pitted against the rich and knowledgeable professionals and institutions. These big players have the best of insider information, the best of software, hedging strategies and deep pockets. An unprepared retail investor is bound to lose money in their game if he is not trained and prepared. However there are some useful attributes of a retail investor that can help him make money even against these odds.

The first attribute is that the retail investor is invisible to the big players. His trade size is so small that his entry and exit goes unnoticed. His trades have no impact on the price of the stocks. This is his biggest advantage. A retail investor trading in cash market can remain absolutely invisible till he makes a trade. Since he is putting cash upfront and has planned a longer term trade he does not need to enter a 'stop loss' in the system. We all know that market always moves in the direction of maximum stop losses. But our investor need not disclose his stop loss. It can remain in his mind. So operators can not move the stock price towards the stop loss to trigger his exit simply because they do not know it.

The second advantage is that our retail investor can concentrate his holdings in a single stock or sector. He is not bound by any rules to diversify into various sectors and stocks. He can have 100% holding in a single stock if he thinks that would boost his returns. Or he could switch out of a stock even after one day if the trade has gone wrong. He need not answer anyone but his own intellect. An institutional investor has no such luxury.

The third advantage is that he need not redeem his money before his planned event. Time horizon is always on his side as long as he has invested only the long term funds. An institutional investor has to cater for the financial needs and compulsions of millions of other investors.

These three advantages make it a compelling case for more Indian retail investors to enter our equity markets. Do remember that our markets are going up because our economy is doing well. It is always the macro economic factors that determine the market performance. If one is invested in growth stocks of Indian economy then we can safely make about 20% per year in tax free income. I think this point is worthy of serious consideration.

rgds
Vibhas

QE-2....Quantitative Easing Two

2010-10-17T22:03:00.001+05:30

I have been away from the blog for a while now. Today however I thought I must update the blog with some new observations.

The US economy guided by Mr Ben Bernanke has been printing paper money relentlessly. The term is 'Quantitative Easing Two' (QE-2), meaning second tidal wave of US dollars hitting the world economies. This makes the dollars cheap and hence their exports competitive. This also forces other currencies to appreciate thereby reducing their competitiveness. In our context our IT companies and other exporters are going to have a tough time ahead.However our oil imports are going to cost us less. That is good news. Since we are a domestically driven economy we are in a sweet spot. Export dependent economies are going to face some head wind ahead. Also almost all major currencies are going to face a lot of volatility in the near future.

What does this mean for you and me? We must buy stocks of businesses driven by domestic consumption. We should buy stocks who do not need to take large hedges on currencies. We should buy stocks of companies with competent CFOs.

USA and China are having a silent economic war for supremacy in the future. We Indians must tighten our governance and bring in foresight in our planning. Intellectuals must be respected and brought in decision making processes. Political expediency must be done away with.

Let us hope someone of substance reads this seriously and takes appropriate steps.

rgds
Vibhas

How to be happy in life !

2010-09-28T21:50:00.001+05:30

We have four important assets to enjoy our life. Time, Money, People and Health.We exercise different influences over each of them. Today I shall discuss similarities between Time and Money.

Time can not be stored but Money can be.Time moves in only forward direction but Money can move back and forth. Time can not be created but Money can be. Since Time can not be replenished it is imperative that we control the quality of our Time. Neither Time nor Money management is taught to us in our growing up days. We attach less value to our Time and more value to our Money, generally speaking. This is so because we have not understood how to value our Time. Secondly even though we value our Money we are not taught how to deploy it effectively. Money must work most efficiently for us and grow large enough to sustain us for our lifetime. Most of us know how to chase Money, generate large income but very few of us know how to convert Money into a great appreciating asset.Do remember that Money is a Poor Master but an Excellent Servant.Stock market is the place where we can convert Money into a precious asset.So we must know where,when,how and how long to deploy our funds so as to achieve Financial Freedom at the earliest. This is one learning that would greatly add to our quality of life. Unfortunately this learning is available to very few. Hence most investors entering stock markets lose money to these wise men.

Time well spent in learning the ropes of sound investing techniques will go a long way in achieving Financial Freedom. Charts, TA are our footsteps towards that goal. Dedication, patience, passion, self discipline are certain essential qualities to become a wise investor.

rgds
Vibhas

MP Rajeev Chandrashekhar's blog

2010-09-10T07:23:00.001+05:30

Do read an interesting blog by Mr Rajeev Chandrashekhar,MP, specially this post.

http://www.rajeev.in/blog/?p=179

rgds
Vibhas

Introspecting and celebrating victories

2010-09-05T22:32:00.001+05:30

I have been writing this blog since Oct 2006. Indian market, Indian economy and my knowledge of TA evolved hand in hand. Made some money and lost some money. But all in all it has been an 'enriching' experience, both financially and emotionally.
This blog is a record of my thoughts on stocks, charts, Indian economic environment, politics,governance and what have you. When I read my old articles I find a link and that gives me perspective for the future. The record helps me beat the flaws of my short term memory and gives me a long term outlook.
So which stocks did turn out to be winners? Did they display their potential in the charts? Could they have been spotted and held on? Similarly were there some doubtful candidates, not trustworthy? Could they have been spotted? Did they also show signs of trouble before the trouble erupted?
The answer is a resounding 'Yes'. Both good and bad stocks did show signs of their potential for growth or for trouble well in time. This has well been recorded. Sticking to the good ones for long term and weeding out the bad ones early enough ( and definitely not averaging them in bad times) was the foundation that created wealth.
The examples of good stocks are HDFC, HDFC Bank, L&T, SBI, ITC, NTPC, Petronet LNG.
The examples of poor performers are Reliance Communication and Reliance Power.
We can check this out from my earlier posts in this blog.
So lessons have been learnt.
Stick to good management team, look for a diversified business group banking on India's growth sectors and stay invested for the long term.
Investing can not get easier than this.
Short term trading, TV analyst views, stock tips... a strict No No.

rgds
Vibhas

Goldbees Vs Titan Industries

2010-08-30T14:12:00.001+05:30

I have uploaded Goldbees and Titan Industries charts here.
Have a look at the prices from Jan 2010. While Goldbees has moved up from Rs 1650 to Rs 1950 max, Titan Industries which uses gold as raw material has moved from Rs 1400 to Rs 3000. I suppose the reason is that Titan stock price is determined by growth in business where as Gold prices are a pure demand supply function.
Food for thought ?
Your comments are welcome.

rgds
Vibhas

Euphoria

2010-08-24T14:57:00.002+05:30

Indian markets have been rising relentlessly.I have been watching them with awe.Liquidity from overseas and short covering is taking the markets up and up. India is growing well and sectors affecting domestic economy are growing well too.How long would this rally continue? When will investors pull their money out? How much is the FII inflow going to be? Some are saying that as much as USD 23 Billion are likely to be invested. Our very own LIC will also be investing close to USD 10 billion. If that be so then markets are not likely to tank anytime soon.

What are the threats to Indian economy? I think they are (a) poor governance, (b) all talk and no action on ground,(c) slow progress of infrastructure development, (d) big scams like IPL gate and CWG, (e) failure to punish the culprits and denying justice to the common man.

Unless these issues are taken care of seriously the economy would not grow to its full potential. Our representatives in the parliament are very efficient in increasing their own salary but have no time to resolve the real issues of governance. In fact we need to change the mindset of our people. In a democracy people are the rulers, not subjects. We elect MPs to govern the state. They are not our 'rulers'. They are mere 'representatives'. But years of 'King and its subjects' mentality has removed these ideas from our psyche. The UPA is not a 'ruling' coalition, it is a 'governing' coalition. Even media needs to adapt this phrase in their speech.

I feel that unless we take active interest in our governance these issues would never be solved. We need to assert our rights and question our representatives from Gram Panchayat to the PM. That is the real spirit of democracy. It is such a change that I wish to see. Economic growth will easily happen in such an aware society.

rgds
Vibhas

SBI : waiting for a break out

2010-07-25T15:59:00.000+05:30

SBI (six months, daily)
SBI is waiting to break out of Rs 2500 price. It has shown higher tops and bottoms, MACD is above '0' line, RSI is not yet overbought and directional index indicates uptrend continuation. With Indian economy expected to grow at 8.4% SBI could be the main beneficiary. Fresh additions could be initiated above 2500.

rgds
Vibhas

Break outs

2010-07-11T11:14:00.001+05:30

I had written about potential bottoming of the telecom stocks in March. Bharti Airtel, Idea and Reliance Communications were showing signs of finding strong supports in March. Click here.
These stocks seem to have scared the shorts and hence have broken out upwards. Bharti remains the top pick in telecom and can rise further. Must be bought on all dips from now on. Though it could have been bought earlier, I usually wait for the market to signal a positive trend reversal with strong volumes. This has happened only now. Hence the strategy.

Larsen is attracting aggressive buying may be due to expectations of good results and a potential bonus in October. IDFC is now finding support at 180. HDFC and HDFC Bank are in strong uptrends. It is difficult to find stocks to buy because they are getting expensive. One approach is to stay in cash and wait for corrections. Second method is to buy a fixed amount every month irrespective of price levels. We can choose any method.

rgds
Vibhas

IDFC Break out

2010-06-30T21:34:00.001+05:30

IDFC ( daily, six months)
IDFC has given a break out of its previous trading range of 140 to 174. There must be some new development hence the aggressive buying from bulls. IDFC must be bought on all dips to 174. There is no immediate resistance till 200 ( approx). Perhaps non banking infra status by RBI and recent QIP raising has improved its future prospects. We do not look for meaning. We read charts and act because they tell the complete story. Look at the arrows on the chart. A picture is better than a thousand words.

rgds
Vibhas

Randomness: what is it?

2010-06-13T18:51:00.000+05:30

We have heard a lot of random behaviour of the markets. "Prices move randomly". "We need to benefit from the randomness". "Fooled by Randomness".People talk about randomness as something unpredictable. But what exactly is randomness? How do we understand its repercussions? I thought I should dwell on it and write my perspective.

Randomness means unpredictable behaviour devoid of any pattern.Since emotions drive the markets,buying or selling pressure changes prices randomly. But that is only partially true. While prices may very randomly they tend to settle down towards the intrinsic value of the business nee stock. They move from support to resistance and vice-versa. Thus this is not randomness. Anyone who has a fair idea of intrinsic valuation of any business can certainly benefit from this. What is random is the time-frame over which these moves occur. Specially in the short term. How will markets open tomorrow? What would be the stock price tomorrow? This is absolutely random. If that be so then why worry about randomness? Why not just buy stocks at your valuation and sell when they are overpriced? This sounds simple enough. The only difficulty is one needs to hold onto the stock till it reaches our desired selling price. So anyone with own funds and having the holding capacity need not worry about randomness. He/She ought to buy good stocks when they are cheap and let market euphoria take them up and up and up. Worry about randomness is for short term trader and speculator. Randomness (of price variation) is a friendly event for an investor.

rgds
Vibhas

Why I like reading stock charts

2010-05-20T14:41:00.004+05:30

Stock Charts reflect trend in price movements. Prices are a reflection of market consensus of earnings, profitability and growth potential of the company. Over a period of say one year, charts give us fairly accurate estimates of a company’s growth and future.

I shall take the example of Larsen and Toubro. The market has historically given it a Price to Earnings ratio of 20. When L&T disappointed the market in January 2010 by lower than expected third quarter results, market punished the stock severely. But the stock found support at Rs 1400. 1400/20= 70. It indicates market had factored in an annual EPS of Rs 70 way back in Jan 10. The recent results have proved that it has actually delivered Rs 70 as EPS for the FY 09-10. Thus market knows in advance.

Now the future. The management has guided for 20% upward guidance. 70x1.2= Rs 84 EPS. Thus the target price for FY 10-11 ought to be 84x20=Rs 1680. If we look at Larsen chart, then we know that these price points are already existing. The strong resistance at Rs 1700 ( or Rs 1729), indicates 1700/20= Rs 85 EPS. See market knows it in advance. However if market decides to pay a premium and value it at 25 times earnings then the target price is 84x25=Rs 2100.

So what does one do with knowledge? We buy on all dips to 1600, 1500 down to 1400 if any. We may trade in the stock by selling partly at 1700 if desired. A fresh breakout above 1729 will however indicate a new range for the stock. Then trading should be avoided. Market is perceiving some new developments. So go with it.

In a volatile market Larsen appears to be a safe stock which needs to catch up on its performance.

Rgds

Vibhas