Nifty Outlook September 15, 2010

Markets are high no doubt and people are confused. But , technically, markets are strong while fundamentally, the evaluations seems stretched.
Long term trend seems up but a correction may come for short term. I don't see any big correction though markets have been in a consolidating period.

Nifty may correct once it will kiss 6000 level that too before 2010 say goodbye to us.

Indian market is on bullish path and Global markets behavior on day-2-day basis can at best work as speed bump.

When you get mired in technical analysis, it can get pretty easy to forget the human element of the market. Markets are driven by optimistic crowd and Shorting rarely pays.

Must Watch Video on how we take everything for granted

Happy Ganesh Chaturthi

Lurking Nifty

Nifty has run up from 4806 (closing 25 May 2010) to a level of 5576 (closing 6 Sep 2010). This is a net gain of 770 points equal to 16% in 4 months!!!

This is a stellar performance for Nifty. In the current zone there is no specific resistance seen since Nifty has not traded in this range for more than 2 years now! This could take nifty to levels beyond 5700, if liquidity and buying continues.

Nifty has strong supports @ 5450/5400/5350. The recent bounce back remains a major support area @ 5350. Below which nifty can correct up to 5250/5150 on lower side.

With Nifty PE trading in excess of 23, it surely seems overbought to me. We are sitting on the second peak ever.

However, the excess liquidity has been keeping our markets rallying. Also, since most world markets have not matched our performance, India and China have been attracting huge foreign funds, hence the out performance.

This situation can be compared to the one in Sept-Dec 2007 where the only direction for the market was up. And then all of us saw what happened from Jan 2008.

Well, if one was to see the past, statistically, Nifty has traded for just 18% of the time at a PE of 21 or higher. The current PE is 23+.

Back in 2007-2008, Nifty PE actually reached 27+ in the mad frenzy and this is how markets are. World over markets are predominantly driven by sentiment and logic is only looked upon in hind sight.

Well, to keep it short & straight, this is the time to take your money and run. This is my personal opinion and I do not seek any agreement from the readers. But for me, this is no buying time and I would rather choose to wait for a better day.

I may be absolutely wrong in the above analysis. However, this is my perception about the current scenario based on the past data. I have tried my best to keep any sentiment out as I write this.

Take it as you like. You have a choice.

EID Mubarak

May all your good deeds & du'as be accepted,

wishes fulfilled and all your sins forgiven.

May Allah grant us the strength to help those less fortunate in Allah's name, Insha-Allah!
Niftymama sent best wishes to all human beings worldwide on the occasion of Eid-al-Fitr, marking the end of the holy month of Ramadan,

Mama Ji Series

Hi All,

On demand of readers, I have decided to recommend one stock each week.

There will be coding for each stock pick for easy reference.

Please do your own research before investing, I am still learning

regards
Dhirendra
on behalf of Niftymama group

DH01_GIC Housing Finance Ltd

Event Date:	Sep 07, 2010
Opportunity Type:	Short-Term Bullish
Close Price:	144.15
Target Price Range:	162.00 - 167.00

A Continuation Wedge (Bullish) is considered a bullish signal. It indicates a possible continuation of the current uptrend.

A Continuation Wedge (Bullish) consists of two converging trend lines. The trend lines are slanted downward. Unlike the Triangles where the apex is pointed to the right, the apex of this pattern is slanted downwards at an angle. This is because prices edge steadily lower in a converging pattern i.e. there are lower highs and lower lows. A bullish signal occurs when prices break above the upper trendline.

Over the weeks or months that this pattern forms the trend appears downward but the long-term range is still upward.

Volume should diminish as the pattern forms.

2010 Countrywise Stock Market Performance YTD

Most of us would have heard of Black September. No I am not talking about the infamous Munich massacre but the theory that the markets would tank in September. I did some number crunching from the years 2001-2009 to check out the facts and fiction.

1. In all the years from 2001 onwards, the low of September has been at least 0.5 % less than August close. This is irrespective of it being a bull or bear run. August close for this year is 5402. So, going by history we should see at least 5370 once this September.

2. The highs hit in September vary from 0.5% in a bear market to 10-12 % in roaring bull runs. This year the high recorded is already 2 pc higher than August Close. Since we are in somewhat neutral zone, neither roaring Bull run nor Bear run, if we take the Mean we get a rise of around 4-5 %. This would take the Nifty to 5600-5650 range as the high point.

3. The September Closing value gives us an average of 2 pc rise and extremities at -12 pc and higher end 9 pc. The low point was recorded in a year of Black Swan event, the 9/11 crash. The high point was in year of the bull runs of 2005 and 2009. If we take the average, it comes to about 2 pc which is around 5500.

The conclusions we can draw from the above data is expect a minimum low of 5370, high of 5600-5650 and a close of 5500. This will stand invalidated if there is another Black Swan event like terrorist attack, bank shutting down, European crisis etc.

Overlaying this analysis with where critical support and resistance levels are, at around 5370 trim down your shorts if you have any and wait for convincing breach of 5350.
Above 5550, go long with a stop loss of 5510. The month is ahead of us, lets see how it plays out.
Black September group was responsible for the Munich Games massacre of Israeli athletes in 1972. More details from wiki at below link:

Historical Call Put open interest

1. 5400PE stands out as something that's history defying. In my 12 months of tracking OI of puts/calls, I have never seen 1.14Cr OI on any put/call in the very first week of a series. The simple interpretation is 5400 put writers will defend this market. The only negative I attach to this is if put writers have done put back spread trade where they sell 5400PE & buy lower level PEs. In that case its dangerous because these put writers will cover the puts very fast if there is a very fast fall.

2. Calls at 5500/5600 are still getting added with 5500 being the resistance now. But we wont stay in the 5400-5500 range for sure. Something has to give way next week.

3. What's bullish is 5500PEs are also being added - almost 30% increase in OI this week. So upside can easily come if more 5500PEs are added and 5500CEs covered.

4. Lower levels puts addition has slowed down towards the end of this week which is reflected in the PCR reduction from 1.48 last week to 1.38 now. But still this is the first time I have seen 80-90L OI on lower level puts in the very first week of a series.

How to pick stock for you

......................
One day my BOSS asked me, how I picked stocks for investment and my answer was

Picking a fundamentally strong stock is not that very important. You can simply pick any of the blue chips in the indices.

Detailed Fundamental analysis is difficult, why???

- Financial Data available is dated
- Account statements are subject to many assumptions and qualifications
-Difficult for outsiders to get full facts underlying the statements
-Requires industry knowledge

FA is not only analysing a balance but also understanding business models, technology, inputs, impact of changing economic conditions, exchange rates, interest rates, information asymmetry, etc.etc.

Technical Analysis is comparatively easier and will be much more useful for a retail investor;
the most popular strategies for finding good stocks (or at least avoiding bad ones). In other words, we'll explore the art of stock-picking - selecting stocks based on a certain set of criteria, with the aim of achieving a rate of return that is greater than the market's overall average.

Before exploring the vast world of stock-picking methodologies, I should address a few misconceptions. Many investors new to the stock-picking scene believe that there is some infallible strategy that, once followed, will guarantee success. There is no foolproof system for picking stocks! If you are reading this in search of a magic key to unlock instant wealth, I am sorry, but I know of no such key.

This doesn't mean you can't expand your wealth through the stock market. It's just better to think of stock-picking as an art rather than a science. There are a few reasons for this:

1. So many factors affect a company's health that it is nearly impossible to construct a formula that will predict success. It is one thing to assemble data that you can work with, but quite another to determine which numbers are relevant.
2. A lot of information is intangible and cannot be measured. The quantifiable aspects of a company, such as profits, are easy enough to find. But how do you measure the qualitative factors, such as the company's staff, its competitive advantages, its reputation and so on? This combination of tangible and intangible aspects makes picking stocks a highly subjective, even intuitive process.
3. Because of the human (often irrational) element inherent in the forces that move the stock market, stocks do not always do what you anticipate they'll do. Emotions can change quickly and unpredictably. And unfortunately, when confidence turns into fear, the stock market can be a dangerous place.

The bottom line is that there is no one way to pick stocks. Better to think of every stock strategy as nothing more than an application of a theory - a "best guess" of how to invest. And sometimes two seemingly opposed theories can be successful at the same time. Perhaps just as important as considering theory, is determining how well an investment strategy fits your personal outlook, time frame, risk tolerance and the amount of time you want to devote to investing and picking stocks.

Picking a stocks technically is better than fundamental analysis if you want to gain in shorter period of time, though it never guarantee wealth creation. It gives instance reflection of investors mind which one can in-cash very easily. No matter what strategy you choose, just stick to it and it will open doors to real happiness of stocks picking. Just try it ... !!