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Trend reversal likely below 5250-5350

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In my last blog on 13 May 2011, it was clearly mentioned that markets staying below 5500 could see levels of 5400 which is a very strong support. May expiry started at level of 5750 & now stands at almost 7% down in this expiry. In the current expiry, banking stocks have been worst hit and from the frontline stocks, SBI is the biggest loser down by almost 25%.

From the first week of May, as previously mentioned by me that indices can go up to 18000 / 5400 after it breaches the level of 5700 / 19000. Since last few days markets have started trading below 5400 levels. Outlook based on the charts seems bearish as long as it stays below 5400 and further, the situation will become more bearish if it does not sustain above 5350. Short term oscillators are showing some signs of optimism but it needs support based on the key levels.

If indices manage a bounce back & later sustain above 5460 there is a strong possibility of resumption of uptrend. Tomorrow being the first day of June’s Future Option series, it needs to be monitored very closely for any early indication of change of trend.

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Written by Rakesh Gandhi

May 26, 2011 at 7:19 pm

Markets today

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Yesterday, the US markets were at their best levels since March 2009 but, locally our markets ended below the short support level of 5800 which is now a cause of concern for traders. The April F&O expiry started at 5860 & than made high of 5945 during the month, but then could not gain further & tapered down to make low of 5693.

Markets have seen good consolidation being range bound for April after the sharp rally from 5350 levels till the top formed in April. Market needs an immediate bounce above 5850 for regaining the lost uptrend that started in month of March. Based on technical chart  pattern & averages next support on Nifty at this point in time is 5750 & weakness will continue as long as Nifty remains below 5850. Further,  Intermediate trend could be at risk if Nifty sustains below 5700 and does not bounce back thereafter. The long term averages & charts suggest that dips should be bought as structurally the trend is bullish.

Written by Rakesh Gandhi

April 29, 2011 at 2:09 pm

Posted in Market Update, Market Watch

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Markets Today

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It was mentioned that downward pressure will increase once the markets break the 5380 level, evidently this happened at a rapid speed owing to the last day of expiry & global worries. Now we are at the threshold of retesting the bottom formed 2 weeks ago.

There is possibility of this occurrence in next two days except that a bearish move has already begun and it would be important to watch for signs of strength and the regaining lost ground. For regaining strength, the market needs to bounce back above the 5400 levels and if not, we may see indices breaking the lows made on 11-Feb 2011 and fall further, in that case the nearest support seen from current levels is at 17200/5100.

Based on the technical charts 500EMA is currently placed at 5150 as well as based on the long term weekly formation of a support trend line  that is placed around this levels.  As a result, we could see panic if this levels are broken. After the announcement of budget indices at the very least need to  cross & sustain above 5430/18000 which can pull the bulls back into action otherwise the downward trend will continue.

 

Written by Rakesh Gandhi

February 25, 2011 at 3:10 pm

Markets Today

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As anticipated the markets were volatile as we saw a two sided move during trade yesterday. At the current juncture there are too many positive & negative forces working together that could lead to market fluctuation. Reasons being…..

1. Rise of crude oil price due to developments in LIBYA.

2. Reliance’s biggest deal with BP.

3. European & Asian markets down by more than 1.5% due to LIBYA effects.

4. News flows ahead of announcement of Budget on 28th Feb.

5. Our Futures & Options expiry on 24th Feb.

So, in this challenging time it would be difficult to pin point the market direction but based on technical levels we could take some directional cues. The charts suggest that the short term trend is good as long as markets stay above 5375 & 5540 on the upside will be trend deciding level. There is a momentous upward move expected once Nifty starts trading above 5540, till then we will witness markets drifting & finding support near the 5400 levels. Lastly, banking stocks will again positive momentum if Bank Nifty trades above 11000.

Written by Rakesh Gandhi

February 22, 2011 at 3:04 pm

Posted in Market Update

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Markets Today

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The first trading session of last week, i.e. Monday, markets witnessed a strong uptrend, which came to an abrupt ending on Friday, the first sign of reversal. Even so, markets managed to close up 2.75% for the week, despite the aforementioned sharp fall on Friday.

We believe that before the Union Budget we could see rising volatility, and I suggest caution in the days leading upto the budget, as there could be false breakout on either side. Based on technical study a fall below 5375 could increase downward pressure, but looking at the long term perspective, a fall only below 5250 will trigger a fresh round of selling. On the upside 5480 will act as near term resistance & above that, the next resistance is at 5525. Based on the short term charts,  I believe during the week swing traders can trade with stop loss of 5375.

Banking stocks are showing good resilience to the current downtrend after making an intermediate low a few days ago. Further if the  Bank Nifty holds above 11000 levels, which was seen for a very short period in last week, we could see strong upward momentum in many banking stocks.

Written by Rakesh Gandhi

February 21, 2011 at 3:37 pm

Hope it’s a Happy New Year

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Investors have now lost close to 5 lakh crore in the last 5 days of trading, and we still are scouting for a reason why the markets have fallen?

Markets have lost more than 6% in the first 6 days of trading for the year 2011. To statistically put it, benchmark indices took an entire one year (2010) to gain ~17%. Such numbers are nerve wrecking, but we need to ask ourselves, is this is the end of the strong rally in the markets?

In times like these, when the pace of fall is so swift, the first thing we should try and avoid doing is justifying the fall and exploring for various reasons why the markets have fallen. I believe that the markets are exceptionally smart and are also forward looking and do not dwell on the present scenario. Sample this; the Banknifty was down close to 20% end of December 2010 from their November ’10 lows, much before the inflation numbers started rising in the month of January 2011.

If you follow reason far enough it always leads to conclusions that are contrary to reason. – Samuel Butler.

We can always have a reason why the markets have fallen and try and associate the same, but what is more important is whether these events/news etc have a long term impact on the markets or not. I believe that all the recent news of the ‘issues’ unearthing from various scams in the markets and many other issues, will provide a long term stability in the markets. We can see stringent rules and regulations, more transparency across corporate affairs etc. In the short term, however such events do impact the ‘sentiment’ of the investor, as we can see from the reaction of the various stocks.

Now the next trigger for the markets which everyone is eagerly awaiting is the corporate earnings of Q3 FY11, and the RBI policy meet to be held on 25th January 2011. These events can lead to an understanding of the overall scenario going forward.

Everything now boils down to one question; Do you still have faith in the Indian economy going forward, or is your confidence shaken?

Written by Kunal Bothra

January 11, 2011 at 4:45 pm

Posted in Market Watch

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Investor Sentiment in Bull/Bear markets

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As I write this article, Indian equity markets are trading at new 52-week highs and very close to their all time high levels. After seeing such strong momentum the one question which still lingers in the minds of many investors is whether we can trust the strength of the market or blindfold ourselves to the actual truth.

More precisely, ARE we in a BULL market or is it just a strong Rally from the deep lows?

post imageI believe that the key to understanding the markets and also to trade successfully is to understand the psychology of an investor at every stage of markets. Why do resistance and supports occur on charts and why does price correct from these levels. It’s because there is a significant amount of investor sentiment seen at such levels. The more the time taken for a chart formation and the more the number of shares traded in a range, the more powerful is the breakout/breakdown, because of the high number of sentiment’s involved.

The two most widely used terminologies for depicting the investor sentiment are ‘optimism’ and ‘pessimism’.

Let us discuss the case of a bull market. In bull markets there is an aura of euphoria and exuberance amongst people. The general outlook of an economy is that of prosperity, probable decoupling of the economy from other world markets, to put it crisply, there is ‘optimism’ everywhere. For example, according to the socioeconomic theory, a very interesting theory is that, in bull markets we see that animation movies perform very well. This is mainly due to a cheerful sentiment among the people.

There is an urge to outperform our counterparts in bull markets. We don’t want to miss out on any new ideas and want to implement every new strategy to make big returns. This gives rise to a sense of speculation in the minds of a so called ‘investor’.

Speculation is an activity seen more when there is subjectivity and good amount of difficulty in determining the true value of a stock. Speculation in stocks pushes the prices to unfathomable levels.

During a bubble however the propensity to speculate is high, many big sized players in the market argue for higher valuations for a young, currently unprofitable but good potential for growth. By contrast, the value of a firm with long earning history and tangible assets is much less subjective, and thus the stock is likely to be less sensitive to sentiment. That is probably the reason why we see a string of previously unknown companies making headlines, we see a good number of IPO’s in the markets getting launched and many of them even with a satisfactory business model making it big. I believe that is where the crux of the bubble scenario is, that the midcap and the small cap stocks will always give higher returns as compared to any other large cap stocks. Such mid to small sized company stocks give good returns, because of high amount of sentiment involved in them.

Now let us discuss the case of a bear market, there is fear and panic around. The general belief is that the worst is not yet over, and there is still more to come. Investors are made to believe that the fundamentals of a company cannot improve any further. In the socioeconomic theory, by a similar logic to that of bull markets, more horror movies would get successful, because of the fear existing in the minds of the people.

Corrections are generally sharp because there is FEAR which is the predominant sentiment involved. As I quote from one of the famous dialogue writers “Madness is like gravity. All it needs is a little push. Nobody panics when things go according to a plan, even if the plan is horrifying.”

I am sure very few people are aware of the HEM-line indicator. The theory states that the stock market rises and falls with women’s hemlines. This is another example of the prevalent psychology of the investing public.

I think the bull and bear phases of any markets are formed based on the sentiment of the investor.

The key to making money in stocks is not to get scared out of them.

–          Peter Lynch


www.lkpsec.com

 

Written by Kunal Bothra

October 18, 2010 at 5:10 am