According to media reports, the Union Finance Minister Palaniappan Chidambaram has cautioned retail investors at this stage. The BSE Sensex just fell short of 18000 mark as the enthusiasm among the market participants grew more.
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Mr. Chidambaram was quoted as saying, “I doubt if retail investors are entering the market at this level. I would advise them caution. Apparently there is lot of interest from foreign institutional investors (in Indian shares). Why should we not welcome it? ”
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The foreign institutional investors have huge amount of funds that can be invested at possible market tops as well as bottoms. They can hold the stocks for longer periods of time. The average retail investor though, has a very limited amount of money (usually hard earned) to invest in stocks. When the stock market begins to fall, retail investors buy at dips; but still market may go down. They realize that they could be trapped and this results in more panic selling.
Based on technical scenario, we had mentioned in our weekly review dated September 22, 2007 and monthly review dated September 29, 2007 that the market has entered an uncertain zone and investors need to be cautious.
The following table shows the points gained/lost by both Sensex and Nifty during the week.
| Date | Nifty | Sensex |
| 01-Oct-07 | 47.60 | 37.52 |
| 03-Oct-07 | 141.85 | 518.42 |
| 04-Oct-07 | -2.15 | -69.90 |
| 05-Oct-07 | -22.80 | -3.78 |
On Friday, Sensex touched a high of 17979 while the Nifty registered a high of 5261 on Wednesday.
The following table shows the Foreign Institutional Investors activity in capital market segment at both BSE and NSE for the week. These are provisional figures (in Rs. Crores) released by the stock exchanges.
| Date | Net purchase/sale |
| 01-Oct-07 | 2196.00 |
| 03-Oct-07 | 3161.50 |
| 04-Oct-07 | 575.00 |
| 05-Oct-07 | 948.06 |
On October 5, FII’s trading activity in derivative (Futures & Options) market is given below.
| Contracts | Net purchase/sale |
| INDEX FUTURES | 675.33 |
| INDEX OPTIONS | 17.02 |
| STOCK FUTURES | -667.33 |
| STOCK OPTIONS | -14.61 |
This gives us some idea of what they do. In the capital market segment they were net buyers; in stock futures they were net sellers. They have the flexibility to be long in one segment and short in the other. They can sell the stocks bought at lower levels; they can cover up their current short positions when market declines.
Over the last couple of days, volatility has been on the higher side. On Thursday Nifty opened at 5212. After hitting a high of 5233, it touched a low of 5126 and closed at 5209. Once again a ‘doji’ body was formed, indicating indecision. The long lower shadow indicates that there was strong buying at lower levels. The intraday chart of Nifty on October 5 is shown above. On Friday there was a long upper shadow, suggesting profit booking at higher levels.
Let us now discuss the daily chart of TATASPONGE.
We discussed about this stock in my previous article, “5 Reasons to Remain Bullish on India Stocks in the Short Term”. We can note the “Hanging Man” candlestick formations at the top of the uptrend. This signifies selling at higher levels. As a result the stock fell slightly. But, there was “bullish piercing line” pattern formation after the hanging man. A confirmation, with a green candle and higher close have appeared on the second day. The stock hit the 20% upper freeze in early trade on Friday; but due to some profit booking it closed slightly at 232.60, gaining 19.19%.
We may consider this as overenthusiastic since the stock has retraced more than 100% from a low of 90.15 in March 2007. It is not however, abnormal in a strong bull market. But this can be a trap to those who buy at higher levels. Also, if the piercing line pattern formation occurs after a steady downtrend it is more meaningful and reliable. At the market tops and in sideways movement it may not make much sense.
In the daily chart shown above, Nifty still has not shown any sign of reversal. So is the case with weekly charts. As I have mentioned in my previous articles, a confirmation is necessary in order to judge the trend reversal. The slow stochastics indicator has been moving above 80 over the last one month; though it is normal to be in overbought zones for a period of time, a correction is surely missing. Declines are healthy in a trending bull market. In the absence of such corrections/declines, the upmove becomes questionable.
It is suggested once again that the small and retail investors may approach the market with a cautious note at these levels. This however, does not mean that they should not trade. There will be few opportunities even in such uncertain markets. However, strict stop losses should be applied by day traders and short term investors.
Advance / Decline Ratio:
| Date | Adv. | Dec. | Unch. |
| 01-Oct-07 | 678 | 457 | 23 |
| 03-Oct-07 | 396 | 744 | 17 |
| 04-Oct-07 | 418 | 707 | 30 |
| 05-Oct-07 | 339 | 789 | 24 |
Interestingly, Nifty gained 141.85 points or 2.80% on October 3 but 64% of the stocks declined.
Top Gainers / Losers among Index stocks:
| Scrip | % Gain | Scrip | % Loss |
| REL | 20.12 | ITC | 5.82 |
| SUZLON | 13.70 | SBIN | 4.61 |
| TATAPOWER | 10.52 | MTNL | 3.98 |
| LT | 10.03 | NATIONALUM | 3.74 |
| RCOM | 10.01 | HEROHONDA | 3.49 |
Top Gainers / Losers in overall market:
| Scrip | % Gain | Scrip | % Loss |
| TORNTPOWER | 38.91 | NIITLTD | 18.19 |
| NBVENTURES | 33.85 | MIRZAINT | 15.11 |
| TATASPONGE | 33.41 | SABERORGAN | 14.29 |
| GREAVESCOT | 27.14 | IFCI | 13.62 |
| INDOWIND | 26.88 | ZENITHINFO | 13.02 |