Archives : BEAR MARKET ??? 07/03/2008

 BEAR MARKET ??? - 07-03-2008

 The Sensex plunged on Friday by 566 points to 15,975 on weak global cues. Weekly loss was a whopping 1603 or 10%. Sensex has fallen all the way from 21206 to close 5231 points or 25% away from the top, thus confirming an intermittent bear market. As a result of which any rally will be termed as a correction and will be used to short. A whole lot of factors were responsible for this fall which included the following factors:

1.WEAK GLOBAL MARKETS.

2.HIKE IN SHORT TERM CAPITAL GAINS TAX. 

3.CHANGE IN TAX TREATMENT OF STT.

4. POLITICAL CONCERNS. 

5. ICICI BANK SUFFERS SUBPRIME LOSSES.

6. RELIANCE ENERGY ANNOUNCES BUY BACK.

SENSEX.

 NIFTY.  

HOW TO TRADE?  

LAST WEEK S RECOMMENDATIONS:

THIS WEEK S RECOMMENDATIONS:

 


The Sensex plunged on Friday by 566 points to 15,975 on weak global cues. Weekly loss was a whopping 1603 or 10%. Sensex has fallen all the way from 21206 to close 5231 points or 25% away from the top, thus confirming an intermittent bear market. As a result of which any rally will be termed as a correction and will be used to short. A whole lot of factors were responsible for this fall which included the following factors: 

1.WEAK GLOBAL MARKETS.

Weak global markets due to worries over US subprime mortgage crisis and impact of a US recession, created havoc on the domestic bourses.

2.HIKE IN SHORT TERM CAPITAL GAINS TAX.

The sentiment was further dampened by a hike in Short Term Capital gains Tax. Traders, domestic funds and even FIIs are likely to be hit by a hike in this Tax on sale of shares to 15% from 10%, which amounts to a massive 50% hike in the tax rate, announced in the Union Budget. As a result of the hike may be that some of traders and funds may pre-pone their sale of equities before the higher short term capital gains tax becomes applicable from 1 April 2008.

3.CHANGE IN TAX TREATMENT OF STT.

The change in tax treatment of STT in the budget, has impacted arbitrage volumes. STT will now be treated like any other deductible expenditure against business income. This is against the current practice whereby an assessee gets 100% rebate for STT paid against the tax liability for the year. A fall in arbitrage will result in decline in liquidity on the bourses.

4. POLITICAL CONCERNS.

Concerns on the political front also weighed on the market after the Leftists on Thursday, renewed its threat to the UPA government saying that the ruling coalition’s future depended on how it took the call on pursuing the Indo-US nuclear deal.

5. ICICI BANK SUFFERS SUBPRIME LOSSES.

ICICI Bank has suffered mark to market losses of $264 million about Rs.1,056 crores on account of exposure to overseas credit derivatives and investments in fixed income assets. Mark to market losses happen when the current market value of an asset is lower than its acquisition value, requiring the holder of the asset to make a provision equivalent to the difference.However according to the ICICI, these are not sub-prime losses, as it doesn’t have any direct exposure to sub-prime market. This loss has come from its investments in overseas credit derivatives and from its overseas subsidiaries investments in fixed income assets. These may be recoverable assets, but their current market value is lower than the price at which they were bought and the bank had to make provision for it. In other words, if ICICI has to sell these assets at today’ prices it would suffer the losses. 

6. RELIANCE ENERGY ANNOUNCES BUY BACK.

Reliance Energy announced a buyback of Rs. 2000 crores to reduce short-term volatility in share price and deter speculative activity in the stock. The buyback price of up to Rs 1,600 is at a 9.63% premium over Wednesday’s, 5 March 2008, closing price of Rs 1459. Buy back will be in two phases. The company will release Rs 800 crore in the first tranche, while the remaining Rs 1,200 crore will be allotted in the second tranche. The company could purchase around 1.25 crore shares from the open market which will raise promoter’s stake to 37% of the reduced equity base as shares bought back are to be extinguished 

SENSEX.

Sensex opened the week at 17227, made a high of 17227, low of 15689 and closed the week at 15975. The net loss on a weekly basis was 1603 points. The market is in a bear phase, where every rise will be a bear market correction and it will be sold into. Thus one should use every rise to exit stuck up long position and also to short weak stocks. This strategy should be adopted as long as it trades below the 200 DMA i.e. below 17100. The trendline resistance is at 16165, 16673 and 17548. The trendline support is at 15755. On Friday, this same trendline provided strong support and so this level of 15755 assumes significance in this down fall. In fact if the trendline support of 15755 is broken then it may go on to test previous low of 15332. For the week ahead resistance is at 16165-16673-17100. The support is at 15755-15332-14506.

NIFTY.

Nifty opened the week at 5222, made a high of 5222, low of 4672 and closed the week at 4771, thus registering a weekly loss of 452 points. The indicators are looking weak. The MACD is in the negative zone and is showing more weakness and so are the RSI and the momentum oscillators. The trendline support for the Nifty is at 4650 and 4560. The trendline resistance falls at 5130, 5155 and 5288. It is important that the Nifty should not fall below 4650, or it may lead to a test of previous low of 4448. Keep stoploss of 4560 for all your long trades. All upward rallies will be termed as pull back rallies only. Selling will be visible at higher levels. Nifty OI PCR is at 1.06 and the futures are trading at a discount of 45 points. Any pull back in the global market will lead to a major short covering rally. For the week ahead, resistance is at  4815-5060-5155-5288. Support is at 4650-4560-4448.

 HOW TO TRADE?  

This week use Protective Put strategy for Hindalco. Buy Hindalco future 195 for a target of 221 and buy Put of 190 strike price.   

LAST WEEK S RECOMMENDATIONS: 

Since the markets collapsed by 10%, but still our recommendations did pretty well as can be seen below. 

AUROBINDO PHARMA TGT was 353, REACHED 348.

CAIRN INDIA TGT was 237, REACHED 231.

RPL TGT was 182, REACHED 178.

SESA GOA TGT was 3568, REACHED 3520.

ESSAR OIL TGT was 272, REACHED 266.  

THIS WEEK S RECOMMENDATIONS:

NALCO 471 SL 455 TGT 485-496.

HINDALCO 196 SL 187 TGT 206-221.

HLL 225 SL 219 TGT 233-237-244.

TULIP IT 935 SL 900 TGT 957-980.

MC DOWELL 1686 SL 1630 TGT 1749-1772.

MIC ELECTRONICS 763 SL 740 TGT 821-854.

Disclaimer : The recommendations made herein do not constitute an offer to sell or a solicitation to buy any of the securities mentioned. No representations can be made that the recommendations contained herein will be profitable or that they will not result in losses. Readers using the information contained herein are solely responsible for their actions. Information is obtained from sources deemed to be reliable but is not guaranteed as to accuracy and completeness.

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