Weekly Review of India Stock Market

Over the last 6 trading sessions, the Nifty witnessed lot of volatility (4 days on the upper side due to profit booking and 1 day on the lower side due to pull back) and confusion prevailed as to what the next move could be.

In the last week’s review we discussed about the formation of a bullish engulfing pattern at the top of an uptrend. I had mentioned that the Japanese view it as “double lovers’ suicide’ and profit booking may start. This was exactly the case, as shown in the daily chart below.

While the bullish engulfing pattern formed at support levels in a downtrend is considered as a reversal sign, the one formed at the top of an uptrend is an indication that the market may witness profit booking or a possible downtrend may start.

In the above chart, last Friday, just after the formation of bullish engulfing pattern, a red candle with a long upper shadow appeared. The same was the case this Tuesday, Wednesday and Friday, indicating the sessions encountered sell off. On Monday, the formation of long lower shadow means that the attempt by the bears to push the index down was negated by the bulls. On Thursday Nifty gained 32.10 points, the only session bulls were in total control without much volatility either on upper or lower side.

The following table gives the sessionwise gain/loss for Nifty.

Date	Points Gained	% Gain / Loss
10-Sep-07	-1.65	-0.04
11-Sep-07	-10.80	-0.24
12-Sep-07	-0.20	0.00
13-Sep-07	32.10	0.71
14-Sep-07	-10.95	-0.24

Nifty gained 8.50 points (0.19%) for the week. However, it still did not close above 4530, an important resistance level. It just missed it by 1 point on Thursday when it closed at 4529.

The intraday chart of Nifty (Source: NSE web site) shows the profit booking that started after the middle of the trading session. It also tells us about the inability of the bulls to maintain the index at higher levels right through the day.

However, there are no reversal signs yet in both weekly and monthly charts of Nifty and we maintain our bullish view of medium and long term.

In the Nifty futures contract though, there is a bullish engulfing pattern at the top of the uptrend; but the volatility could not be found. Also, no reversal sign can be seen in this chart too.

Forecast for next week:

Last week I had mentioned that we got a clue but no confirmation. Now that the clue has been proved correct, we should expect a reversal signal and correction this week. This correction, when happens, will be good for the index. It is worth mentioning here that, after the last month’s correction, Nifty has retraced about 90% from its low at 4002.

Is there any possibility that index may breakout on the upper side without getting corrected? Though one may not rule out this straightaway, the chances are negligible, as seen from the volatility and profit booking at higher levels.

Advance / Decline Ratio:

Date	Adv.	Dec.	Unch.
10-Sep-07	612	515	26
11-Sep-07	492	630	29
12-Sep-07	589	537	27
13-Sep-07	653	474	24
14-Sep-07	314	824	15

Top Gainers / Losers among Index stocks:

Scrip	% Gain	Scrip	% Loss
SUZLON	7.01	HCLTECH	9.71
RPL	6.47	WIPRO	5.85
STER	5.40	TCS	5.00
DABUR	5.06	CIPLA	4.71
IPCL	4.78	SATYAMCOMP	4.24

Top Gainers / Losers in overall market:

Scrip	% Gain	Scrip	% Loss
TIDEWATER	55.90	DCHL	19.87
MARKSANS	40.13	DECOLIGHT	16.71
NAUKRI	38.48	SELMCL	15.05
AFTEK	34.94	ROLTA	13.73
NOVAPETRO	33.24	SUBEX	12.92

India Stock Market – Monthly Review for August 2007

Indices witness non stop rally; The India Street Analysis proved right!

A couple of weeks ago, there were some ‘worries’ about how Indian stock market is likely to perform in the near future. Reasons cited were:

• US Sub-prime mortgage crisis may have ‘continued to effect’ Indian stock markets;
• The appreciating Japanese Yen may have made the hedge funds to offload their holdings in emerging markets;
• Possible political uncertainty may ‘worry’ the markets.

In the last week’s review, we had indicated that the indices appeared to have bottomed out. We gave 3 reasons to believe so.

• Solid buying support came in after every fall
• A bullish ‘harami’ candlestick pattern in weekly chart with medium reliability
• Decreasing price and open interest in August contracts of Nifty futures

Those who were skeptical about Technical Analysis may have found out what exactly was reality.

Indeed, the indices DID bottom out. This week, the Nifty gained 273.85 points or 6.54% on a weekly close basis. In the last one year, it gained 5% or more only once during the week ended March 23, 2007. This week’s gain is only 7th such occasion in the last 3 years. That way, this week has been quite a remarkable turnaround in Indian stock markets.

The following table summarizes the daily gains of Nifty during the week.

Date	Points Gained	% Gain
27-Aug-07	112.45	2.68
28-Aug-07	18.10	0.42
29-Aug-07	38.60	0.89
30-Aug-07	53.00	1.22
31-Aug-07	51.70	1.17

It can be seen that Nifty didn’t lose a single point throughout this week.

Let’s now discuss the daily chart of Nifty.

The index has completed one full Elliott wave cycle as can be seen from the above chart. Waves 1 – 5 and a – c are already over. To begin a fresh cycle, the index needs to make a higher high and a higher low.

In the chart shown below, Fibonacci retracements are displayed. Nifty has successfully closed above 4401 i.e. 61.8% retracement which is the technical recovery target.

On August 27, a “Three outside up” pattern was formed in the daily chart of Nifty. Though the shadows of red candle were not engulfed by the shadows of the green candle, it is still a pattern with a lesser reliability. The green candle on Monday had a partial upward gap and this confirmed the engulfing pattern formation.

In the weekly chart, a bullish “Three inside up” pattern has been formed as shown below.

The bullish pattern in weekly chart confirms the reversal. But in monthly chart, a bearish “Harami” pattern has been formed. Watch the long lower shadow. This is an indication of the lower side volatility. Previously, a bearish “Engulfing” pattern was formed as shown. But these two candlestick patterns need confirmation on the third period (day, week or month). Without confirmation, the patterns are insignificant.

Forecast for the next week:

Now that we have confirmation of reversal in short and medium term charts, we need to look for the formation of first wave in daily chart i.e. a higher high and a higher low. The index is likely to face resistance at 4530 and ideally, a close above 4530 will complete the formation of first wave.

Even if that does not happen, 38.2% and 61.8% retracement levels should hold. Considering a low of 4002 and a high of 4471 these levels work out to 4293 and 4183 respectively. So, if a correction in the index starts straightaway next week (since the index gained for six consecutive days in a row) these are the two levels to watch out for. A reversal should occur after any of these retracements are breached.

We still remain positive on Indian stock market. Any decline in the index next week will only be an opportunity to enter the Nifty futures.

Futures & Options Market:

It can be seen that the price and open interest are increasing for the September contracts for Nifty futures. This again, is a bullish sign, meaning more buyers enter the market as price increases.

IPO Update:

The India Street analyzed Puravankara Projects Limited IPO. Its issue price was Rs.400. It got listed on August 30. It opened with a negative premium of Rs.90 at Rs.310 and closed at Rs.362.30. However, today it gained slightly to close at Rs.377.05.

For the top 10 gainers and losers in the overall market for this month please read my earlier article, “India’s hottest stocks for August 2007”.

The top 5 gainers and losers for the month among index stocks are given below.

Scrip	% Gain	Scrip	% Loss
SAIL	12.01	CIPLA	12.75
BHEL	9.29	VSNL	12.01
TATASTEEL	5.10	HINDPETRO	8.79
RPL	3.63	GAIL	8.38
RELIANCE	3.56	TCS	7.95

The India Street analyzed BHEL in “Stock of the week: Bharat Heavy Electricals Limited” and VSNL in “Stock of the week: Videsh Sanchar Nigam Limited VSNL”. We discussed about CIPLA in my previous article, “5 More Stocks to Avoid in the Short Term”.

Our long term pick Nagarjuna Fertilizers Limited gained 72.49% this month. Our short term pick Tata Sponge Iron Limited gained 20.84% this month.

5 More Stocks to Avoid in the Short Term

When the stock market indices go up, some of the folks get excited. I have been asked a hundred times, “Ah! Market is on a roll, how about your portfolio?” Obviously the common man thinks that because the index moves upwards all the stock prices (or at least most of them) need to go up. This is simply not true. The stock market, like any other market just follows the principles of demand and supply gap. For example, if the Indian rupee appreciates, the IT companies will gain less. The market sentiment may turn negative against the software companies and investors may sell off their holdings to book their profits or losses, if any.

Let us now discuss some India stocks that are bearish for the short term.

Cipla Limited:

Chemical, Industrial and Pharmaceutical Laboratories (CIPLA) was founded in the year 1935 by Khwaja Abdul Hamied, who earned a doctorate in Chemistry from Berlin University in 1927. He gave the company all his patent and proprietary formulas for several drugs and medicines, without charging any royalty. Today, the company manufactures hundreds of prescription drugs, over-the-counter medicines (OTC) and bulk drugs, including drug intermediates and active pharmaceutical ingredients. The company registered a net profit of Rs.661 crores in 2006 – 07 in the competitive pharmaceutical industry.

Technically the stock looks pretty bearish. Watch the “falling window” or downward gap on April 27. The stock lost 14% on that day. It continued to make lower highs and lower lows. The bearish break out occurred on July 23, with a small downward gap. It has closed below support for three days in a row now. Next support exists at 180; but if that is also broken stock may fall even further. Given such a technical scenario, it is probably wise to avoid the stock for the time being.

Hanung Toys and Textiles Limited:

The company manufactures soft toys and textiles like home furnishings. The company’s net profit during 2006 – 07 was Rs.27.81 crores. It bagged an export order worth USD 65 million in May.

Head and shoulder pattern has been formed in the daily chart as shown above. The neckline support has been broken yesterday and today, though the volumes are relatively low. The high of the right shoulder has not been penetrated by the stock. Lower closes with increased volumes will confirm the pattern. This could take few more sessions. But it is better not to venture into this stock based on the current trend.

Inox Leisure Limited:

Inox Leisure Limited is a subsidiary of Gujarat Flurochemicals Limited and is the diversification venture of the INOX group into entertainment. It runs 15 multiplexes with 54 screens in 13 cities making it the only national multiplex chain. Inox s also in an alliance with the Pantaloon Group, a partnership that provides Inox preferential access to all real estate developments, which Pantaloon takes up for its retail chain. The company declared a net profit of Rs.24.79 crores in the financial year 2006 – 07.

An example of a “double top” formation during an uptrend can be seen in the daily chart. Just after the previous high of 141.40 was broken by the stock, a bearish “dark cloud cover” candlestick pattern followed by a “three outside down” candlestick pattern was formed. It can be seen from the chart that the support trendline has been broken; further upmoves if, any, should be used only to exit the stock.

Shyam Telecom Limited:

Shyam Telecom Limited is a manufacturer of telecommunication equipments in India. The products include single channel VHF/UHF radio telephone system, 10/20 channel digital UHF radio system, optical line terminating equipment, VSAT systems, wireless in local loop systems, etc. It offers innovative coverage solutions for mobile operators, real estate developers, neutral host providers, businesses, and residences.

It incurred a net loss of Rs.40.52 crores during the financial year 2006 – 07.

Following the amalgamation of its telecom equipment manufacturing division and capital restructuring it got relisted in November 2006. It has never been an investor’s choice, as can be seen from the chart. The volumes have been very low; recently it has broken its support and turned bearish. This may not be an ideal stock to invest or trade for short term.

Zensar Technologies Limited:

Zensar Technlogies is a Pune based IT outsourcing company. It caters to the needs of retail, manufacturing, financial services, utilities, pharmaceuticals, media and textile sectors. It has marketing presence in US, Europe and Asia Pacific regions. The company has operations and a customer base spanning across 18 countries including software development centres in India and China.

It declared a net profit of Rs.33.86 crores for the financial year 2006 – 07.

The supports at 320 and 281 have been broken recently. The heavy volumes just prior to the first bearish breakout confirm the downtrend. The next support exists at 225; however, the technical indicators in daily chart suggest further bearishness. The technical scenario in weekly charts is not encouraging either. It is better to avoid the stock for the short term.

India Street Analyst – India Stock Upgrades and Downgrades – Part 1

In this article let us review some stocks which are technically bullish, bearish or sideways. We will keep updating the ratings on a regular basis.

Following ratings are used to indicate the effectiveness of the trend:

««««« Strong

«««« Good

««« Medium

«« Moderate

« Weak

The effectiveness of the trend is arrived at after taking into account the retracements, momentum indicators, volume indicators and direction indicators.

The ratings are for medium term and these are based on weekly charts.

Development Credit Bank (DCB):

The stock retraced from a low of 35 to a high of 86.40 during wave 1 as indicated in the chart. There was a mild sideways movement in between; it may not be called a wave since the stock never broke the 38.2% retracement and closed below it. 38.2% and 61.8% are the most important fibonacci retracements. That way, we will consider the entire movement from 35 to 86.40 as a single wave. This gives a retracement of 247%. The second wave’s low of 53 falls below 61.8% retracement, but never really closed below 50%. The third wave made a high of 120.55 or about 227% retracement. Currently the 4^th wave is in progress. As can be seen from the chart, there is consistent decline in price and volume. This indicates bullishness is intact. Stock is expected to test its previous high of 86.40. 61.8% retracement works out to 78.90 and the stock may bounce back between these two levels. Final target, going by the previous waves retracement history, may be around 160 (assuming the stock makes an exact low of 78.90 during the 4^th wave). Actual targets can be estimated after the stock bounces back. This stock is an ideal example of wave theory.

Rating for this stock: Bullish «««««

SICAL LOGISTICS LIMITED:

Yet another stock that has lost 50% from its previous high. From 580 during May 2006 it fell to a low of 144.05 in March 2007. The stock has broken its resistance at 256.15. The next resistance level is around 301.

Watch the triangle breakout in the chart. It is a highly bullish sign. Though the stock may be in overbought condition due to the nearly 100% retracement in the first wave, it is bullish for the medium term. Any decline in this stock could be only an opportunity to enter. 61.8% retracement works out to 414, which could be the medium term target.

Rating for the stock: Bullish ««««

PSL Limited :

The stock, after making a high of 312 in January 2006 fell to a low of 158 in September 2006. It was in consolidation since then. The strong resistance around 250 was broken recently and it closed above it on a weekly basis. The momentum, direction and volume indicators favour further uptrend. The stock is likely to test its previous high of 312 shortly.

But the lack of volumes during the uptrend is a minor concern. However, if it manages to close above 312 on a weekly basis we can expect even further upward movement.

Rating for the stock: Bullish «««

Stocks that are bearish / sideways:

Stock	Status	Rating
ACC	BEARISH	««««
BOMBAY DYEING	BEARISH	«««
CIPLA	BEARISH	««
CAMBRIDGE	SIDEWAYS	«««««
ENGINEERS INDIA	SIDEWAYS	«««
TAMIL NADU PETRO	SIDEWAYS	«««