Markets going down, a Happy Scenario !!!!

Markets are going down on expected lines, well because of what? Well because of an old age maxim of wall street, buy on rumours sell on news!!! So the budget promised much but delivered little (for the markets) hence the correct time was to buy on the expectations and sell before the budget. . . Now all that is in hindsight, but I hope some of you might have read my previous article why-buy-and-hold-does-not-make-sense and booked some profits. . .at least I did (and am gloating over it). I also know that the markets will again give good opportunity to buy. . . actually there are so many strategies for the markets that its just not simple buying and selling of shares that one needs to do. . .one can play with any of the so many financial instruments available. . .so if ones money is lying idle you can buy debt MF to get daily income. . .If you believe that markets are going to go up, one can buy ETF (exchange Traded Fund), also there are sectoral funds to play with, then more so there are commodity traded funds, gold funds etc etc. . .If nothing else then one should keep their monies at least in sweep accounts. . .

Now coming to where from here. . .well markets have gone into short term downtrend, if this trend continues then we might slip into deeper downtrend. . .although a word of caution, the turn around in the markets will be equally sharp . . .so one will have to very nimble footed to catch the upswing. . .

A picture of MACD of Nifty pointing out how we have slipped below 0 (A line below 0 indicates negative trend or the markets). . .The point is that the markets will give us a great chance again to play the upswing and downswing, its just a matter of timing and not getting caught on the wrong foot!!!

why buy and hold does not make sense now!

Well we all have heard of the old adage of stock market, "buy and hold" and you would end up making lots of money, but does it really work? and does it work in all sorts of market conditions?

I think the answer to that is perhaps no. . .

Why? Here is a small analysis of why. . .If one had invested ones money in a software co in 2000 then it would perhaps take another 10 years just to get the return back. Nasdaq is still half of where it was in 2000! If one had invested in the year 2008, then one and half year later perhaps the value would be just half. . .now if someone even had invested at the time when the markets were at the way down, at 19000, 18000, 17000, 16000, 15000 even then one would still be having negative returns. Then also it is not that the stock that one had invested would have come back to the same levels. Some companies have performed very badly, the market conditions are very different. E.g. financial sector that was hot fav until a year back is not in favour anymore. Brokerages that were commanding 25+ multiples are not being owned even in single multiples anymore, and not to mention if one had invested in companies that have gone bust, then it is a completely different story. . .

So whats the learning. . . .The story is that the financial world has changed. . .with real time information the response times have changed. Now a news can impact a stock price in seconds. Now it does not take years for markets to fall, it happens in one month (what we saw in October) similarly when markets have to go up they can be on circuit and that's enough to increase the wealth of the shareholders in a day. . .

Hence it becomes important to set goals, keep strict stop losses, and if a trade becomes profitable then sustaining it till the time it starts to retrace ( I think a 20% kind of trailing stop loss should be kept). The age old adage of buy and hold is not completely baseless however it is important to review ones investments, cause things can change and as we have seen things change very very fast!!!

Time to Relook into your portfolio !

Well i have come across lots of my friends who have liquidated their portfolios so that they can be in cash, cause this crash has shaken the confidence of everyone from equity markets. . .Well I am also in the same camp who have sold off their equity well but my reason is little different. I am not in the camp that believes the markets would go down, but I am in the camp of those who feel that risk reward is perhaps not so favourable anymore. . . and well its nice to take some profits off once in a while :)

I am just taking some time to rejig my portfolio, wait for the opportune time to enter and then try to make some smart returns . . .

Coming back to the NIFTY, the signs are still positive, the MACD is still positive indicating that Nifty is trading with a positive bias. . .the range for Nifty has moved up to 4100 - 4500. Hence Nifty is doing alright. . .but really cant say whether Nifty will move ahead of its fair valuation or retrace back some of its gains, however as they say you dont lose your shirt by taking some profits of the table !!!

King of good times!!!

Sunny days are here again (quite literally)!!! Sorry have not been able to post many articles as I was out of the country on annual vacation. But what has happened in the markets have left me spell bound :) . Its fantastic to see such good growth in prices and price appreciation. Such moves actually help everyone wherein no one has to lost (except perhaps the people who had shorted!!!). What the magical Monday has done is that it has with one shifted the tide from being cautiously optimistic to plain simple euphoric!!!

I had written in my article on March 10th on how it is the absolutely correct time for long term portfolio building :) http://www.niftydaily.com/2009/03/time-for-some-long-term-buying.html

I hope some of the people might have benefited from it. For me personally I have been able to make a small portfolio for myself too, and lets see how does it fare! So far so good. Got 2 baggers in it, waiting for the 3rd bagger now ;)

Now where do we go from here. Well it seems that the tide has turned, the clock has ticked. . .but is it time to buy out recklessly, I dont think so. . .there are now many stocks that have started to trade way beyond their fundamentals. E.g. trading at 30 times the earnings reminds me of the scenario wherein 21,000 was reached. My philosophy is clear on this count, look around if you feel that something is at a throw away price pick it, even though the markets might be going down, for e.g. some of the stocks saw their bottoms in October lows, although the markets made their final bottom in March, those stocks never touched their October lows again, and perhaps will never do so !!! Similarly it applies conversely also. When you look around and dont find any stock cheap then its time to be in cash and sit around. Just imagine a person who would have missed out the investing bus in 2005, would have got the same levels of the markets in 2009 march. Hence in these 4 years had the person even kept his money in FD he would have made a cool 50% and then again could have been back to investing in 2009, I guess to double his money in 2 months!!! Hence the point is that invest when you are very comfortable with the valuations and obviously a buy or a sell signal can always be checked or confirmed with technical analysis.

Markets heading upwards?

Now with the rally in place and most of the people already forgetting the lows of March and October, things have started to look better. People are no longer talking about the markets heading lower, everyone is now talking about the recovery and how market might cross 3500 & possibly 4000. Well with due respect to all most people had started to talk about 2500 and then 2000 for the nifty when the markets were heading lower. The fact is that it is practically impossible to predict the markets when they are not in a trend shift phase. The trend shifting phase happened when the markets crossed 2800-2900 it was an easier call to take then that the markets would be seeing some good upmoves.

So where do we go from here? Currently we are in an uptrend, however the force of the uptrend has been diminished. We will remain in this uptrend until we go down below 3100. . .

A couple of pointers from my side why one should have some cash in hand.

1) There are down days when the markets have almost given up on most of the stocks, and stocks are available at crazy down valuations. These are the days when one employs the cash the return can be almost 100% within a very small period of time.

2) Indian election results, are a big factor that markets are awaiting. No one knows how the markets will behave after that. We all know that markets dont like instability.

3) Some stocks in the course of recovery have far outshot the correct price that they should command specially considering that the results are not expected to be great. Hence fair value is important.

4) Markets usually do not end the bear market in a V shape recovery. This is exactly what is happening, whereas actual results on the ground are getting worse!

So I think having some cash is the order of the day. If one is invested in the market then its nice to enjoy the upmove, with some stop losses in place. Its nice to take some profit off the table once in a while. Wait for the off days and if the markets change course again then wait for the real off days to enter the markets to gain some multi baggers. . .

Trading Range for Nifty moving higher!!!

With the new upmoves on the Nifty the trading range has moved higher to 3000-3350. . .The red line indicates the trading range. . .Would be interesting to note if Nifty is able to maintain this range or there is a breakout or breakdown. . .

Important to choose MF carefully!

I had taken 3 MF before the start of this current rally . . .and the returns that I have got from the 3 are very different. I had just taken the MF's for the heck of it as my portfolio allocation demanded that I needed to have some proportion of the assets parked in MF's. . .

I took 1 Debt Fund & 2 Equity Funds. The 3 have given very different returns.

Debt -1.39%

Equity MF A: 10.45%

Equity MF B: 6.47%

and my returns from actual investment in equity are in excess of 50% during the same period. . .

Well so whats the point in here? The main thing to notice here is the difference in returns between A & B, since both are equity MF's.  If within one month the difference in returns are as high as 4%, then it makes sense to pick MF with caution and perhaps as much research as picking up stocks. . .Also this scores home a point that investing in direct equities carries a much higher beta than investing in MF's.  Hence if the market goes up then your portfolio will definitely outperform the market and vice versa. . .also another point is that Debt MF do not necessarily always give positive returns in the short term, hence if for a very short term the monies need to be parked then debt MF might give some surprises. . .

Trading Band for Nifty has moved higher!

With the huge upmoves in the markets, almost like a 100m dash, w/o stopping has made the markets change its course not only in the short term but also in the medium term. . .The markets were drifting lower in the previous months and hence a lower range was getting established. The range then was between 2600-2900, with the range being broken only slightly on either side. . . However with this upmove now the range has shifted to 2750-3050; this range stands as of today, however if the market continues to go up the range would also follow suit. . . but none the less the range tells us that if the markets are to plunge tomorrow where are they likely to find good support and then where would the resistances come along. . .Hence the moving up of the range augurs well for the markets from a long term perspective. . .it might for all we know the end of the bear markets!!!

Enjoy till it lasts!

Break out: MACD curve moving above 0, indicating positive trend has begun for the market!

In my previous post I had written that I was expecting some upmoves. . . But the strength of the rally was not something that many had anticipated. However I was happy as I had made some investments prior to that. But only in Cash market. I had taken Welspun, Indiabulls & GE shipping and the returns from them are 61%, 11% & 29% respectively in a matter of a couple of weeks!!!And also this is where investing in direct equities is much more of profitable game rather than investing in MF, provided one has a good understanding of the markets! For e.g. I had bought equity MF also during the same time and they have been able to just about break even in this time!!! I have set out to get decent returns from the market, and am trying to build a model portfolio that includes Equity, Gold, Debt, FD, Cash and MF. . . but I have kept the highest returns from Equity. . .so far so good. . .but I also know that when the reverses happen one has to be very very quick to get out of equities and that is the most difficult decision to make!!! 

Well as I had written in my previous post that some of the stocks were available at dirt cheap valuation, and they would become long term assets, is probably coming true, as I donot expect (and hope) that some of the stocks would ever see the kind of levels they saw in the previous month. . .

Now where from here??? A good question. . .I think currently we are positive. One should ride this rally if you have invested, if not then its a little tricky situation. . .cause you dont want to invest when the market is at the top just to see your equity getting blown up in a couple of days. . .However if you feel very strongly for some stock then wait for the downmove day and one can invest a bit . . .However a good investment is always done when the markets are in a state of fear and not when markets are on an upswing. . .So look at the basics, see if you can make some sense of the technicals (as in this market there are a lot of cos that would still be negative and are an avoid) and then make a decision. . .

Interestingly poised Market! Expecting some upmoves

The recent upmoves were quite welcome, considering that we had broken the closing lows of 8500 on the sensex. The good thing about this upmove was that the midcaps participated generously and went up quite substantially. . .In my last article I had written that it was a good time to buy stocks from a long term perspective. For E.g. It was indeed great to buy a Welspun Gujarat at Rs 45 (its a different matter I had the stock also at Rs 450!!! last January) but its difficult to fathom that we will get these stocks again at these levels!!! So once these stocks come into the kitty at these prices, they surely become long term assets. . .So in a weeks time Welspun has gone up by 40%, this is exactly the power of equities. . .

Trading with a positive bias should be the norm for the week ahead, also with the expiry coming in it would be interesting to note the market movements.