Realty Gains As Nifty Stages Recovery

The GDP numbers provided some relief to the battered bulls as Nifty staged a smart recovery from sub 5800 levels. GDP came at better that expected 8.9% but even that initially failed to have much impact as Nifty dropped almost 50 points lower to 5770. But then recovery was seen across the board and particularly in the stocks that have seen significant erosion in market cap over past 7 days. So, the best performing sector of the day was Realty as short covering and perhaps some value buying at lower levels helped stocks like DLF, Unitech, Orbit, HDIL and IBRealty to gain ground. The financial stocks too were amongst the gainers as buying returned in stocks like SBI and LIC Hsg. Metals remained under pressure on global worries particularly China. Some of the top gainers of the day were Core, Orbit, REC, HCC, IBReal, DCHL, DLF, BGR Energy, Bharti, IOB, Sobha, LIC Hsg, Renuka, HDIL and Can Bank. Stocks that remained under pressure were Pantaloon, GMDC, Escorts, Divis, Ashok Ley, Tata Steel and Voltas.

Nifty saw a significant rebound from 5770 and rallied more than 100 points intraday. But the 5880-90 level provided stiff resistance as Nifty failed to move past this level. But a small consolation for bulls was that Nifty managed to close above 5850. Broadly we believe that 5880-5915 is likely to be significant level to take out. More significantly Nifty now must stay above 5740-50 to stave off the threat of falling into downward spiral yet again. Bharti has provided leadership in past 5-7 days and it seems that Bharti could continue to outperform. Some resistance is likely around 375-380 but the overall set-up suggests that it could target Rs 425-440 in coming weeks. Some banking stocks like Central Bank( above 192), IDBI( above 166), Federal bank ( above 449), Uco bank and PNB( above 1230) are also showing signs of bottoming out.

Nifty has support around 5810-20 and then around 5760-75 while fresh momentum is likely above 5915.

Nifty Breaks The Losing Streak

There was some respite for the bulls as Nifty snapped its losing streak. Bailout package for Ireland and relief for Greece calmed the nerves a bit as far as global sentiments were concerned. Back home it was a nervous day despite some buying in certain key heavyweights like RIL, Bhel and L&T. Realty counters remained under pressure and the rebound seen in some of these was mild and hesitant. Index movement was basically on account of some buying at lower levels in Bharti, RIL and Bhel. BGR Energy was the biggest gainer amongst the F&O counters as it gained almost 22% on record volumes. Few others that found bargain buyers were IRB Infra, Chambal, Adani, Renuka, IFCI, Onmobile, Cairns, Bank of India, APIL and GMR Infra. Core Projects continued to struggle and selling was also seen in Escorts, Reliance Infra, Neyvelli, Welcorp, IVRCL Infra, EKC, Power Grid and RCOM.

Nifty did not make a fresh low and hesitatingly managed to move past 5800. Its real test would be to sustain above 5850-5880 as higher levels could invite fresh selling. The stocks and the sectors that have struggled over last few days continue to look jittery despite having fallen sharply. It needs to be seen whether index as well as the weaker stocks hold their Friday’s lows. IT and Pharma counters are being looked upon as safe havens and the price behaviour also reflects this. So, stocks like Lupin, Sun Pharma, TCS and Infosys are looking good. Bharti has been resilient and could be looked at as a positional trade or investment. Few others that are showing positive tendency are Indusind Bank, IFCI, Ultratech, Voltas, GE Shipping, Renuka Sugars and Auro Pharma.

Nifty has support around 5740-50 and then around 5680-90 while resistance is seen around 5870 and then 5925-30.

Scandals Continue To Put Pressure on Nifty

Nifty remained under immense pressure for the 4th consecutive week as market was rattled by yet another scandal. This time it was LIC Hsg and other banking institutions that were rocked by bribing scandal. CBI probe into realty companies getting loans from these institutions by paying bribes set the cat amongst the pigeons as various realty and financial stocks went into a tailspin. Friday was particularly bad for many stocks as panic gripped the bourses and marginal calls forced brokers to square off positions. So, we had stocks like Core Projects, HCC, Unitech, Orbit and the likes running for cover. HCC was the worst impacted as it also had to deal with Environment ministry that sent a show cause notice for its Lavassa project. JSPL too had to grapple with environment concern and stock hit a new 52 week low before recovering a bit in the end. Overall, it was yet another negative week for the markets as Nifty lost about 2.3%.

Downward spiral continues as Nifty failed to hold on to even the stronger support levels between 5800 and 5850. The leading sector (banking) has been rocked by various scandals and has been witnessing sharp sell off. Realty remains vulnerable given the current scenario and may be witnessing some kind of capitulation. The global scene also is not positive given the Ireland concerns coupled with Chinese tightening. Technically, the 5800-5850 support has not held as Nifty continues to hit new short term lows. Sensex has a bullish gap at around 18850 that has not been filled as yet and provides some faint hope for the bulls. The levels of 18800-900 could provide some support as the indicators have also reached extreme oversold readings. 19400-500 is a resistance area and till the time market sustains above 19500 it would be prudent not to take aggressively long positions. These are tricky times and it would be advisable to wait for some clarity to emerge before resorting to trading long positions.

However, investors with at least 6 months horizon could utilize panics to buy strong stocks. Nifty has support around 5680-5710 and resistance is seen around 5825-5850.

Markets on 25 Nov 10 - Midcap Stocks Have No Takers

Markets opened on a slightly positive note, rallied a bit, managed to remain steady till afternoon but later it gave way as the selling pressure of the expiry day was very heavy. Among the banking stocks PNB , Axis Bank and Bank of India were the big losers. LIC Housing Finance which was the big loser yesterday opened on a negative note and made a low of Rs.945 but managed to buck the trend and rallied smartly to an intraday high of Rs.1113.50 and finally closed at Rs.1053.80 with very minor losses. Infosys, HDFC Bank, Bajaj Auto, TCS, Hero Honda and HDFC were the major gainers and it was primarily Infosys and Bharti which helped the index close around 5800 levels. 
 

The biggest casualty was in the midcap stocks where there were no buyers and as a result the breadth was extremely poor. We are of the view that the corporate loan scandal to a very large extent has been discounted as market feels that this is not a systematic failure. The massive fall in the market to a very large extent can be attributed to the expiry of the derivative segment where rollover did not take place because of lack of confidence in the uptrend.

 

Other stocks which managed to buck the trend were Lupin, Indusind Bank, Bata India, Ultratech Cement, ACC and GE Shipping. These are the stocks which should be bought if the market remains steady tomorrow.

Nifty will face strong support at 5785 and 5750 and will face strong resistance around 5840 and 5885 levels.

Markets on 24 Nov 10 - LIC Loan Scam Affects Markets

Markets had opened on a steady note and were trading in a tight range but in the late afternoon the LIC Housing corporate loan scam saw the market and especially the PSU banking stocks tank by more than 10-12%. LIC Housing was the worst hit because of its direct involvement saw the stock losing Rs.238 in a single trading session. It fell to Rs.1070 against its previous closing of Rs.1245. The other PSU banking stocks which were badly hit were Bank of India, Central Banl, PNB, Canara Bank and SBI. But we do not think that this negative event has the potential to derail the Indian Bull market story. There could be some more fall because of this event but quality stocks will attract investors and will even attract premium because of strong fundamentals and strong corporate governance.

 

The market breadth turned negative after the reports of loan scam, in contrast with a strong breadth earlier in the day. The BSE 30-share Sensex lost 231.99 points or 1.18%, off close to 375 points from the day's high and up close to 85 points from the day's low. Volatility was high as traders rolled over positions in the derivatives segment. We are of the opinion that markets will have a bearish bias in the next few trading sessions and hence all rallies should be sold into. The medium and long term structure of the India growth story and the bull market is intact but it is the short term which will give problems to the market. However, it will not be a situation where every stock irrespective of its fundamentals will be hammered like 2008 crash. This time select stocks which have strong fundamentals will be bought during panic situations. Moreover, the market too is not heavily overleveraged. So there will be a decline but it might get arrested around 5800 or at the worst 5750 levels. Strong resistance will be witnessed around 6000 levels. Hence for the next one month, market might trade between 5750 and 6050. It will be extremely choppy and volatile to say the least.

The strategy for the short term would be to trade only on an intraday basis with tight stop losses and invest only for long term. Positional trading should be avoided because of volatility and gapped openings.

Markets on 22 Nov - Nifty Bounces Back

Nifty bounced back strongly to regain level of 6000. After a slightly positive opening, market traded nervously around 5930 for 2-3 hours before gaining strength and momentum as the day progressed. The second half was particularly convincing for bulls as Nifty moved past 5960 and then 6000. Recovery was led by IT, Autos and Banking stocks and later it spread to almost all sectors. Fertilizer stocks however were under pressure and were amongst the biggest losers. S Kumar’s was the biggest gainer amongst the derivative stocks as it zoomed up by more than 12%. Other major gainers were Uco bank, Triveni, Havells, Ruchi Soya, Indusind bank, Srei Infra, KFA, IDFC, Dena Bank, Escorts, Wipro, JP and Kotak bank. 
 

Nifty came close to 5900 during the day but managed to sustain above that and staged a smart recovery to close more than 2% higher at 6010. 5930-5950 again becomes a crucial and significant support in the short term. Market has been making these one day kind of moves and it would be difficult to call a bottom for now but probability is on higher side that we may have hit a credible bottom on Friday. 6040-50 is the next level to watch out for as it did provide resistance last time around. So, broadly we are looking at 5930 as a support on the downside while watching out for 6050 to provide some resistance. Sustained move past 6050 would further confirm the analyses that uptrend has indeed resumed. Tata Steel looks bullish above 625 and might challenge the resistance at 650-55 again. In number of stocks 3-day bullish set-ups are in place now and would be confirmed over next couple of days. The list includes Havells, KFA, Indisind Bank, Escorts, REC( above 366), Jain Irrigation( above 220), Exide( above 170) and Can Bank.

 Nifty has support around 5960-70 and then around 5925-30 while fresh momentum is likely above 6050.

Matching a Trading Style to Your Personality

If there is one SINGLE factor which is extremely crucial in determining whether an individual would be successful in making money as a trader/investor, it mainly depends on one’s chosen method that is consistent with one’s own personality and within their comfort zone. Virtually every successful trader/investor that I am familiar with has ultimately ended up with a trading/investment style suited to his / her own personality.

I have learnt from my own experience and it is my firm belief and strong conviction that there is no trading system that comes ready-made, one size fits all. There are so many trading styles that successful traders have adopted and the first thing a prospective trader or a trader after a few years of trading should do is to conduct a self- personality assessment to find out the specific approach that one is comfortable with. This according to me is the single most important factor that separates winning traders from losing traders.

Each trader must select the right market (equities, commodities, currencies), choose between discretionary trading and system trading, fundamental or technical methods, duration of trading (intraday , swing, positional or spread trading), aggressive and conservative styles, and so on and so forth. For all of these diametrically opposite choices, one should make the right selection that matches his/her individual personality so as to avoid internal conflict which might prove to be disastrous. At the end it seems that majority of the traders would have done this homework beforehand but in reality rarely does one seriously select a method that is in sync with one’s own personality. In a general sense, it is remarkably common for traders to adopt methods entirely unsuited to their personalities.

Instead what I find in the market place is traders who are good at system development end up consistently interfering with their own systems and overriding it due to lack of discipline that might often lead to disastrous results. There are traders who buy stocks with an intraday horizon and end up keeping them in their long term portfolio due to incapability of booking losses. For them, a long term investment is a short term trade gone wrong. It is noticed that plenty of investors who are naturally inclined towards searching for potential long term ideas end up instead doing short term trading because of emotional weaknesses like impatience or a habitual compulsion to be in a hyperactive need of consistently doing something in the market. There are several naturally born floor traders or screen readers who have great intuitive skills but abandon their special talent while listening to the loud opinion of the market which always turn out to be wrong at a very critical juncture. At the extreme end, one will also find plenty of theoretically oriented traders who after a lot of hard work develop intricate, low-risk arbitrage strategies but instead of putting them into effective practice they decide to become positional trader which is an approach that requires a different degree of risk acceptance far beyond their comfort levels. It is not uncommon to find investors loaded with momentum stocks in spite of having an aversion to volatility. Also it is uncommon to find investors holding on to value stocks (bought on tips) when they have a natural inclination for instant gratification which momentum stocks provide.

In all the cases mentioned above, one thing which stands out very clear is that, traders/investors with a natural bent for one style of trading/investing end up using a diametrically opposite style, usually to fulfil some emotional need which unfortunately they are not even aware of. To put it rightly, the need to match personality and trading style may be a matter of simplicity and common sense but it is certainly not common.

One should be aware of the following observations about one’s own personality to find out the right approach that would suit him. If you can’t stand to give back significant paper profits, then you are totally

1.      Unsuited for a long-term trend following approach. Even the best long term trend following system will be a disaster because you will never be able to follow it.

2.      If you can’t stay away from the screen, then investment will never suit you. Instead you should be day trading.

3.      On the other hand if you don’t want to watch the quote monitor, forget about intraday trading.

4.      If you can’t stand the emotional strain of making trading decisions, then focus on a mechanical trading system.

5.      If you cannot handle the uncertainty of overnight newsflow, then you are suited only to be a daytrader.

In a nutshell, the approach you use must be right for you; you must be comfortable following it. The importance of this cannot be overemphasized. Incidentally, it is because of this singular reason of mismatch of trading style and personality that purchased trading systems rarely make profits for those who buy them, even if the system is a good one. The odds of getting a winning system may be reasonable but the odds of getting a system that fits your personality is very little. System traders cannot create a system that fits everyone’s personality.

How does one find a system that is in sync with his personality? Given below is a list of questions whose honest answers will help a trader/investor to select a system suited to his personality.

1. What is my greatest weakness as a trader/investor?
2. What is my greatest strength as a trader/investor?
3. What do I find most interesting about trading/investing?
4. What do I find least interesting about trading/investing?
5. Can I handle drawdowns?
6. Do I have the patience to sit on stocks?
7. How much effort (time and money) am I willing to commit to trading/investing?
8. Should I trade as per a mechanical system or a discretionary system?
9. Can I handle volatility?
10. What all should my ideal system contain?

As one introspects and carefully answers the above questions and evaluates, it should become clear to you exactly what you will need for your system to be successful. Knowing one’s personality type and the specific idiosyncrasies of one’s temperament is the piece that will round out the ultimate success of your trading puzzle.

D Prasad is a Chartered Accountant and is in stock market for the past 15 years both as an investor following fundamentals and also as a trader following technical analysis. He is very well read on the subjects of Trading Psychology and Behavioural Finance. He is a partner of Equity Strategists which is an Investment Advisory firm providing Daily Newsletter and SMS Advices to traders, investors and brokerage houses. He is a regular invitee on business channels like NDTV Profit, UTV Bloomberg, CNBC Awaaz, ET Now, Zee Business and TV5. He can be reached at dvprasad1965@gmail.com