HOW TO TRADE?
This week try and construct a bear spread for the Nifty target 4000. Or simply buy a PUT.
LAST WEEK S RECOMMENDATIONS:
Inspite of such a VOLATILE market, all our recommendations achieved their TARGETS. THREE CHEERS.
Sell Reliance 2099 Tgt 2039-1948. Reached 1956.
Sell Rcom 491 tgt 476-458. Reached 450.
Sell ABB 925 tgt 875-799. Reached 850.
Sell L&T 2564 tgt 2362-2296. Reached 2210.
Sell Sterlite ind 767 tgt 741-715. Reached 660.
Sell RPL 171 tgt 160-150-143. Reached 159.
THIS WEEK S RECOMMENDATIONS:
SELL TATA STEEL 726 SL 739 TGT 697-680.
SELL L&T 2265 SL 2313 TGT 2180-2127-2055.
SELL MCDOWELL 1249 SL 1276 TGT 1204-1167.
SELL REL CAP 954 SL 970 TGT 926-912.
SELL ROLTA 261 SL 269 TGT 250- 242.
Article-2 COVER YOUR SHORTS AT NIFTY–4000 – 28/06/2008.
Many people ask me why am I so Bearish? Do you have any short positions in the market? My answer to all of them is that I am neither Bear nor Bull… I AM THE LION. I write what I feel is correct and hope the readers benefit from it.
Our Motto: Keep it simple….Give Quality & not Quantity…. and always Stick to our Views….no Double Sided talks…because we are the LION & the LION always has the final word.
Market has taken support at 13800 and 4093 as predicted by us in the last week’s article. The Bear attack was ferocious and relentless and there was no respite for the Bulls in the past week. The formations suggest that the Bears will now create maximum panic on Monday and Tuesday and then pause for a while. This will lead to a short term bounce and possibly formation of short term bottom. This is not to suggest any sort of up trend, but it only suggests that the markets are likely to take a short term break from one sided downside to a stage of sideways consolidation. But only for a while and then again revert back to the old trend.
SENSEX REASONABLE VALUATION BAND - 11000 TO 12000.
In a widely expected move the RBI raised CRR and Repo rates by 50 bps on Tuesday night. PLRs will now rise above 16.75 per cent on average, making borrowings even more expensive for Real Estate and Capital Intensive projects.
Industrial profit margins already under pressure will further reduce and earnings growth will drop down to about 9 per cent for FY09 giving a Sensex earnings projection of Rs 900. Giving the Sensex companies a P/E of 12, the Sensex should sink to about 11000 to 12000 by December 2008. This is because one tends to assign lower valuations to the market when the growth rate subsides. This leads to a contraction of P/Es.
ARE THE BANKING STOCKS CHEAP?
No, if you consider the following details. Public Sector Banks are trading at 14 times FY09 earnings while Private Banks are trading at 20 times FY09 earnings. Valuations at 2 times the book value also look expensive because the book value looks itself looks stretched, with downside risks on earnings per share and return on capital employed. Banks outperform only when GDP expands and Business Cycle is positive. Both Positives seen over the past 5 years are now reversing. Worse, all Banks are about to be hit by higher rates, non performing loans, higher provisions and lower growth. Rising Inflation, Declining liquidity and rising interest rates will ensure that Banks show a sustained period of under performance. P/E Valuations likely to contract to single digits, and Price to Book multiple closer to 1 to 1.4 times. Key risks to earnings remain for high P/E private banks like ICICI, HDFC Bank, and Axis Bank. All Banks and Real Estate stocks can lose 50 per cent of their market value from here.
Market continued to suffer the Bear onslaught as predicted by us last week. Both Sensex and Nifty have formed a Black Marubuzo on the daily charts on Friday. Both have formed Opening Black Marubuzo on the weekly charts. The Sensex has completed the evening star pattern on Friday. The Candlestick formations suggest further downside to the market starting from Monday.
If you recollect last time we had predicted that the Sensex and Nifty have support at 13887 and 4135 respectively as per the Gann Theory. Both Sensex and Nifty have taken support at these levels for the week. I feel, the Sensex may find short term support in the range of 13500-13222 and the Nifty may find support at 4004-3988. Possibly these support might hold and we might form an intermediate bottom for the time being.
Derivative Analysis suggests that lot of short positions have been rolled over to the July series. The Nifty discount of more than 60 points suggests that majority of the market participants are on the short side and are expecting the market to come down drastically. Lot of Put writing is happening at the Nifty Strike of 4000. The above data suggest that the market will likely find support around 4000 and which is what our technical study too confirms. What we can conclude is, as and when the market touches support at 4000 and if that holds, then there will be a bout of short covering and this will lead the market up in the short term. You may want to call it a short term bounce, but please note that this may be significant from a trader’s point of view. So please cover or close out your short positions at 4000 and if you have the conviction participate in the bounce back. But all this is from the trading point of view as in the long and medium term, we are still in the Bear market.
LAST WEEKS HAMMER STOCKS.
IVR PRIME RECOMMENDED TO SHORT AT 201, REACHED 177!!!LIC HOUSING RECOMMENDED TO SHORT AT 277 REACHED 262!!!If both stocks you had shorted 1000 quantity, then the profits would have been …24+15= Rs. 39000. What more you ask for???
WATCH OUT FOR:
SELL TATA CHEMICALS 291 SL 301 TGT 278-265-256.