Taming of the BULL-Crash of 21 Jan 2008

22.7.2007

Amid free falling sensex/nifty here comes a word of advice from FM
This follows a well traversed path noted since many crashes.

Pankaj

P.S:-Some say a Lungi Master was short all this time along with his FII friends from Mauritius. Now time may come for him and his friends to go long soon. watch them.

All,

Tech View - 2008 added at 2008-01-05 08:16:14

Of fat tails and extreme value theories….

CMP BSE 20300

BEST CASE 22800 FAIR VALUE 14864 BEAR CASE 11200


Following the stellar rally of 2007 , the Indian markets have entered bubble zone and the best case scenario is indicative of a 10-12% % upside from current market levels for the year which will see an above fair value level of approx 21622/ 22800 for the BSE At that level consensus earnings will be approximately 27 times anticipated FY 2008/9 EPS of Rs 850 for India Inc. The upside is with the caveat that that the US undergoes a soft landing , the falling dollar receives aggressive Fed stimulus, emerging markets continue to assert themselves and India's growth and relative valuations remain in good shape.


The bear case indicates a 25 % downside from current levels over the next 12 months with first support at 14,864 and that becomes reality if the US recession is deep, and is combined with significant policy changes at home and a hostile political environment. Extrapolating the fair value estimate of 17 times anticipated FY2008/9 EPS , the fair value of the Sensex works out to approximately 14450 / 14,864 which is also the inflection point from where Elliots 5th wave extension for 2007 began.

Should the US recession deepen significantly and /or a major financial crisis occur in global markets causing deep risk aversion , we see a worse case 45% downside from current levels to 11,022 .

While India Incs fundamentals remain very strong, we believe that external forces will make the extreme value theory continue to create a fat tail zone for equities in 2008.

Caveat emptor - Buyer beware!

22.1.2008 7.30PM

Action has begun to rescue the financial institutions from worldwide meltdown in stock prices

Fed (USA) has cut the key interest Rate by 0.75% from 4.25 to 3.5. which is largest cut by the Bernanke so far.

I am not able to get SEBI website for FII data. but NSE figures indicate increase selling by FII on the back of more Buying.
Remember they don't much worry about technicals and they make it. TA is for us . They make the trend. Once FNO side comes down to acceptable level they may slowly turn buyers as seen in last crash. May 2006)

FII Net seller on 22.1.2008 by 4265.19

date--------- Buy------------- sell-------- Net


FII --2008-01-22-- 6172.99-- 10438.2 ---4265.19--Nifty:-4899.30
FII --2008-01-21 --4295.93 --7592.66 ---3296.73--Nifty:-5208.80

FII --2008-01-18 --4417.25 --6564.17 ---2146.92--Nifty:-5705.30


FII --2008-01-17 --4252.65 --6520.05 ---2267.4--Nifty:-5913.20

FII --2008-01-16 --4439.43 --6957.02 ---2517.59--Nifty:-5935.75
FII --2008-01-15 --5096.81 --5461.9-- -365.09--Nifty:-6074.25

FII --2008-01-14 --4404.39 --4662.05 ---257.66--Nifty:-6206.80

FII ---2008-01-11-- 3807.29 --3699.89 --107.4--Nifty:-6200.10


FII --2008-01-10 --4104.09 --4357.43-- -253.34--Nifty:-6156.95
FII --2008-01-09 --4465.9 --4857.93 ---392.03--Nifty:-6272.00

FII --2008-01-08 --5352.37 --4781.72 --570.65Nifty:-6287.85

FII --2008-01-07 --3932.09 --5475.53 ---1543.44--Nifty:-6279.10
FII --2008-01-04 --4542.3 --4526.29 --16.01--Nifty:-6274.30

FII ---2008-01-03- 5409.98-- 5654.54 ---244.56--Nifty:-6178.55
FII --2008-01-02 --3798.13 --4426.81 ---628.68--Nifty:-6179.40


May be it is useless to track FII as pointed out by many members in previous thread. But They are early investors and if Market has to recover their action is important. Sentiments of Retail Investors will improve only when market is nearing another peak after few pullbacks in uptrend.

For the time being market will be shaken with False breakouts and drifting movements around these prices with wild swings of 15% on either side.

From its peak of 6357.10 (intraday) on 8.1.2007 it has fallen to 4448.50 approximately 1900 points on NSE Nifty and
similarly Sensex has gone down by 6300 points.

If it were to drift down further beyond another 10% on EOD basis then we have it. but if FIIs return to market and become net buyer on weekly basis then rest assured that sooner or later there will be breakout. But individual stock will breakout much earlier.

In general Indian Economy is going up for few more years and market will reflect that.

More later....

pankaj

That's right.Not only they don't worry about TA,but also they have very little respect for TA.And they don't trade on FA also.Financial Mathematics is what they rely upon.

sir pls let me know this is best time to buy are i shall wait for some more time.............................................. ............

Generally I don't give advice to buy and sell, it is left to others.

For investment purpose I can say the following.

Depends on the period of holding and Stocks, which are blue chip and available at discount.
Short term - no
Medium Turn-no
Long term -Once FIIs become Net buyers on weekly basis.
Till such time avoid.
Wait till Expiry of FNO to ascertain FIIs activities.

Pankaj

23.1.2008

FII's have not only increased Buying but sold heavily as well

23-JAN-2008 --- 7749.20 --- 10005.50 ---(2256.20)

Now that various actions such as FM's statement and FED Rate cut did prop up the sentiments but as could be seen European Indices have fallen lower.

FTSE 100 5,545.70 -194.40 -3.39%
DAX 6,450.36 -319.11 -4.71%


USA has opened lower, though DOW/NASDAQ had ended yesterday on higher note.
Dow 11,742.93 -228.26 -1.91%
Nasdaq 2,238.64 -53.63 -2.34%
Chart for Nasdaq
S&P 500 1,282.38 -28.12 -2.15%

From past experiences one could easily advise to use any Rally to exit if one invests in Short term and would have suffered heavily and medium term , mildly.

As for long term investors, Market might have seen bottom in yesterday's intraday low of 15,332.42 . However as sentiments are down, market will witness high degree of volatality. Several stocks which have been thriving on higher pricing sans valuations will be hammered down but stocks in sensex would stage a faster recovery especially where FII buying is coming in.

Small caps and Midcaps would still drift down lower. LT Investors would do best to avoid them buying on expectations unless their valuations are justified by fundamentals.

I suppose one should start looking for stocks with rich cash flow, dividend history, relatively at discounted PE/PB with low debt equity ratio etc. Many old threads would shed enough lights on what to look for.

However as a general guidance I would suggest Telecom stocks, especially new entrants to GSM field such as RCOM, Tata Telecom,
even Bharati is good. There is lot of scope in mobile telephony and growth will be tremendous.

Energy related stocks- I don't know if Rel Power would be available at a discount to IPO price on listing as sentiments are likely to improve by then. But watch and see if you can enter at lower rates. NTPC is a must buy

ALSTOM and AREVA are for those who may like to take some risk, though people may exhibit risk aversion.


Tata steel is a good buy at this level.It recorded lowest at 548 or so. Buying around this level would be good. Stocks would be week for few months as Rights shares have hit the market and ccps would also be listing soon. So one has plenty of time.
SAIL is also good buy.

In Banks SBI is a must buy for simple reason that sooner or later merger will take place and it will become international class Bank. HDFC is good buy as well.

others to watch and enter at lower levels

TATAMOTORS -
LT
REL
INFY
TCS
DLF

Among BSE 100
ABB
Siemans
Reliance ENERGY
IDFC
Among BSE 200
Yes Bank

Then IFCI would be good bet but risky .

In all cases keep a watch on their price movements as they would breakout earlier than others.IF you decide to invest keep for more than one year perspective.

Entry Prices would be some where at lowest weekly close prior to expiry Jan on low volumes or when volumes are drying up on downward move.

These stocks would do well if India Inc does well and recover .

Pankaj

US Indices ends up higher

Dow 12,270.17 +298.98 (+2.50%)
Nasdaq 2,316.41 +24.14 (+1.05%)

Two important factors which should have a bearing on markets in 2008 and 2009 are
1. US elections due in 2008 NOV
If democrates do well ,market sentiments may be down for some time.
if republicans do well then back to fundamentals will be postponed for some years and we might see pressure on Iran building up with attendent consequences in oil -gas market

2. General Elections in India in 2009

It might come in 2008, then we have to face it now.Should it happen, we will get more investment opportunities.

If it happens in 2009 , reactions will be uncertain and depending on what party wins or if it is a hung result.
Hung result will hang market as sentiments indicate that market has not taken kindly to pressure tactics of constituents units of ruling parties disinvestment, nuclear power etc.

These points are to emphaise the risk factors and the need for keeping stop loss. Stop losses protect you from loss and erosion and even long term investors must be aware of fundamental changes taking place in world and its likely impact on portfolio.

Don't treat portfolio as fixed deposit. Its value is as long as the company is doing good.Savings can vanish over night.
If you feel complascent seeing huge gains in your portfolio, do keep few shares of a company no doing so well, growth related stock, high risk stock in small measure just to have a a red bindi on the forehead of your portfolio, it will look beautiful.But don't go outright for penny stock. IFCI is such a good stcok to keep you from sleeping. Tatatele(M) is another.

pankaj

Hi Pankaj,

Thanks for this vital and useful information...

According to the post - i get the feeling that sensex might go Green today? (fingers crossed though )

As for picking - Just I would like to know the following from your post -

IFCI is such a good stcok to keep you from sleeping. Tatatele(M) is another. --> Are you recommending this at current levels?


Thanks & Regards!

Hi Milind
You have sent me PM and chosen not to receive it so I could not reply.
Here is the reply to your query for the sake of clarity.
I think weakness will persist in these two stock and will keep a dash of red in your portfolio. So in small doses of say 5% of portfolio value could be in this. In the long run they will be winner.
I have one or two stocks which are still in red since last crash, but amount is so meager( 100@30,cmp20) that I can afford to keep it. The red color keeps me thinking that I can get loss as well. Of course it does not affect much on overall profits.
positive tension is key to growth else one may become slack.

pankaj