Nifty faces strong resistance for medium term

It has been well established by Ralph N. Elliott in his Elliott Wave Theory that price movements of a security can be predicted by observing and identifying a repetitive pattern of waves. The price movement consists of 5 waves in the direction of the main trend followed by 3 waves in the corrective trend. The duration of these waves can last for centuries (Grand Supercycle), decades (Supercycle), years (Cycle), months (Primary), weeks (Intermediate / Minor), days (Minute), hours (Minuette) and minutes (Sub-Minuette). The 5-3 pattern remains constant although the time span of each may vary.

Technical traders use this theory to identify breakouts for profitable investment opportunities. There are several web sites and books related to this theory; Wikipedia describes the principles in detail. Cyclpro has an exhaustive list of rules and guidelines which need to be observed during the Elliott Wave Analysis.

However, for those with limited resources of time and energy, there are few basic rules that need attention.

1. Wave 2 cannot retrace beyond low of Wave 1; i.e. not more than 100%
2. Wave 3 is never the shortest among impulse waves 1, 3 and 5. This means either Wave 1 could be the shortest or Wave 5 could be the shortest.
3. Wave 4 cannot fall below high of Wave 1.

Using Fibonacci retracements of 38.2% and 61.8%, following relationships between waves can be identified.

Wave 2 = 61.8% of Wave 1

Wave 3 = 161.8% of Wave 1

Wave 4 = 38.2% of Wave 3

Wave 5 = 100% of Wave 1

The above values are approximate and have been found to occur frequently in well trending markets. It is not uncommon for Wave 2 to fall below 61.8%, there are cases in which Wave 2 has retraced only 38.2% of Wave 1. Similarly, Wave 3 has sometimes retraced even 261.8%.

So, what may happen in case these guidelines are violated?

The answer is simple. The move becomes “suspicious.” This is usually considered as a warning sign; a trend reversal may follow soon.

Let us now discuss the long term chart of Nifty.

In the above chart, it can be seen that:

1. The long term bull market started in April 2003 when Nifty had a low of 920
2. Wave 1 ended at 2015 during January 2004
3. Wave 2 retraced 66% and ended during May 2004.
4. Wave 3 retraced 227% of Wave 1 and ended during May 2006.
5. Wave 4 retraced 47.4% of Wave 3 and ended during June 2006.
6. Wave 5 retraced 343% of Wave 1 and ended during January 2008.
7. Wave a retraced 75.5% of the entire movement from low of Wave 1 (920) to high of Wave 5 (6357) and ended during October 2008 with a low of 2253.
8. Wave b has retraced 60.7% of Wave a when it touched 4744 in August 2009.

Cyclepro guidelines suggest that Wave b is likely to retrace 38.2%; the next most likely retracements are 50% and 61.8%. It also says that the time taken by Wave b is usually between 61.8% and 161.8% of the time taken by Wave a. Wave a lasted for 9 months; wave b is currently in its 11 th month.

Taking all these facts into account, we may come to the conclusion that Wave b may end anytime and Wave c is likely to start afterwards.

Nifty has not shown any kind of reversal signs so far in daily charts. The support trendline remains unpenetrated yet. We may see some more sideways movement in the near future. Nifty will face strong resistance around 4797.

Bullish stocks for short term:

CMP = Current Market Price BB = Bullish Breakout TT = Technical Target

1. Binani Cement: CMP 63.55 BB on August 28 TT 83.85
2. Gitanjali Gems: CMP 117.65 BB on August 25 TT 162.30
3. ISMT Limited: CMP 37.55 BB on August 27 TT 56.40
4. Omaxe: CMP 116.45 BB on August 28 TT 170
5. Tata Sponge: CMP 222.40 BB on September 4 TT 265.80

Trading Tata - Family Portfolio in Tata Group

Overview:

Tata Group is one of India's largest and most respected business conglomerates, comprising 98 operating companies (out of which 28 are listed companies) in seven industrial sectors viz. IT systems and communications, engineering, materials, services, energy, consumer products and chemicals. Tata Aviation (now Air India) were the first to operate commercial passenger services in India. The group has operations in more than 85 countries and its companies export products and services to 80 countries. The total employee strength is around 246,000.

Tata Sons, the premier promoter company of the Tatas was established as a trading enterprise by Group founder Jamsetji Tata in 1868. It is the promoter of all companies of the Tata Group and holds the bulk of shareholding in these companies. The chairman of Tata Sons has traditionally been the chairman of the Tata Group.

A section of the Tata family tree can be found at this link. Currently, Ratan Naval Tata is the chairman of the Tata Group.

The Tatas: Jamsetji, J.R.D. and Ratan

Ratan Naval Tata was honoured by the Government of India with the Padma Bhushan on the occasion of the 50th Republic Day of India. He serves in senior capacities in various organisations in India and he is a member of the Prime Minister's Council on Trade and Industry. He remains single.

Nearly 66% of the equity capital of Tata Sons is held by philanthropic trusts endowed by members of the Tata family. The biggest two of these trusts are the Sir Dorabji Tata Trust and the Sir Ratan Tata Trust, which were created by the families of the sons of Jamsetji Tata.

Sir Ratan Tata Trust was established in 1919 and it supports efforts in the development of society through institutional grants in areas of rural livelihoods & communities, education, enhancing civil society & governance, health, arts & culture. Besides institutional grants, the Trust also makes individual grants for education and medical relief. Since inception, the Trust has disbursed over Rs. 335 crores to various institutions and individuals.

Sir Dorabji Tata Trust was established in 1932 and has pioneered leading institutions with endowment grants. Some of them are Tata Institute of Social Sciences, Mumbai; Tata Memorial Centre for Cancer Research and Treatment, Mumbai; Tata Institute of Fundamental Research, Mumbai; Tata Agricultural and Rural Training Centre for the Blind, Phansa; National Centre for Performing Arts (NCPA), Mumbai. Like Sir Ratan Tata Trust, it offers grants for development in areas like education, health, livelihood, natural resources management, etc. It also administers 7 other smaller Tata Trusts.

Tata Institute of Fundamental Research in Mumbai

The Tatas’ philanthropy and contribution towards social development need to be commended. Hence, the two thirds of the shareholding in Tata Sons can be waived since the income from it goes for improvement of the society.

Let us now analyze the Tata family holding in some of the listed companies. The source for the data is BSE and it is as on September 30, 2007.

The Tata Sons Limited has no stake in Computer Maintenance Corporation (CMC), Tata Coffee, Tata Metaliks, Tata Sponge and Tin Plate Company of India, though these belong to the Tata Group. For example, Tata Consultancy Services (TCS) holds 51.12% stake in CMC and it is listed as a Promotor of CMC.

The following table gives the market value of the shares held by Tata Sons in the other listed companies. It is to be noted that the prices are as on November 9, 2007 and the source for the price data is NSE.

Company	No. of Shares	Price 09-Nov	Market Value
Indian Hotels	71684878	139.65	1,001.08
Nelco	2500	103.70	0.03
Rallis India	900750	438.00	39.45
Tata Chemicals	33174323	323.95	1,074.68
Tata Elxsi	12491881	244.20	305.05
Tata Invest	13936641	684.30	953.68
Tata Motors	84487717	694.80	5,870.21
Tata Power	66773052	1,214.00	8,106.25
Tata Steel	168263040	834.00	14,033.14
Tata Tea	14087207	789.85	1,112.68
Tata Teleservices (Mah.)	338065478	42.60	1,440.16
TCS	743568728	985.25	73,260.11
Titan	3937418	1,583.00	623.29
Trent	5060969	505.25	255.71
Voltas	78731780	198.90	1,565.98
VSNL	24260497	481.85	1,168.99

Total market value of Tata Sons holding = Rs. 110,810.48 crores

Tata Family holding = 110,810.48 / 3 = Rs. 36,936.83 crores.

Or say about Rs.37,000 crores.

Conclusion:

The Tatas have a much longer family history and diversified business profile compared to the Ambanis. Nearly two thirds of their portfolio’s market value comes from TCS, which has lost almost 26% from its highest ever close price of Rs.1326 on January 15, 2007. The Reliance group companies have gone up in the last two months; similarly Tata Steel, Tata Power etc. have also gained well in the last few weeks.

From the above analysis, it is clear that the market value of Tatas’ family portfolio in Tata group is about 9 times that of Ambanis’ family portfolio in Reliance (Mukesh and Anil put together).

Weekly Review - India Stock Market

Enthusiasm and volatility rule the market; investors cautioned!

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.

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? ”

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

5 Reasons to Remain Bullish on India Stocks in the Short Term

We have been discussing about technically bullish Indian stocks for the last one month. In this article we shall analyze 5 stocks that are interesting from a short term perspective. These stocks are either from ‘A’ group or ‘B1’ group of Bombay Stock Exchange (BSE).

Mangalore Refinery and Petrochemicals Limited (MRPL):

MRPL was set up in 1988 with a crude processing capacity of 3 million metric tonnes per year by HPCL (Hindustan Petroleum Corporation) and Aditya V Birla group. ONGC (Oil and Natural Gas Corporation) acquired entire shareholding of A V Birla group in 2003, making it a majority held subsidiary. Currently the refinery’s capacity stands at 9.69 million metric tonnes per year. MRPL implemented Quality Management System (QMS) as per ISO 9000:1994 standards from December 1999. In January 2003, MRPL upgraded its QMS to ISO 9001:2000 standards and was accredited on March 13, 2003 by TUV Rheinland. It has declared a net profit of Rs.525 crores for the financial year 2006 – 07.

Both weekly and daily charts of MRPL are displayed below. In weekly chart, an “inverse head and shoulder” pattern has been formed. We have seen in my previous article “Chart patterns and market’s reaction” that this pattern is a bullish sign. Watch the low on the ‘inverse head’ nearly going down to test the previous low. The neckline resistance has been broken comfortably.

In the daily chart, we can see the waves clearly. The first wave retraced from a low of 32.50 to a high of 45.70. Some decline and consolidation has taken place in the last two months; on July 23 it had broken its resistance with very good volumes. The next resistance exists at 48.50, which is also the 50% retracement level considering a previous high of 64.40 and recent low of 32.50.

Close above 48.50 will take the stock to 52.25 and 56.90.

Neyveli Lignite Corporation of India Limited:

Neyveli Lignite Corporation (NLC) is located at Neyveli in the state of Tamil Nadu. It has been involved in exploitation of lignite deposits and thermal power generation for over 40 years. NLC offers consultancy services to other organizations in thermal power generation. It has two lignite mines with a capacity of 10.5 million metric tonnes per annum each and another with a capacity of 3 million metric tonnes per annum. The total installed power generation capacity is 2490 MW. It has also proposed to install power plants in Tuticorin (Tamil Nadu), Gujarat, Rajasthan and Orissa.

The company’s net profit for the financial year 2006 – 07 was Rs.567 crores.

As in the case of MRPL, this stock too, has formed an “inverse head and shoulder” pattern in weekly chart. It has also broken its resistance in weekly chart.The breakout volumes in daily chart have been good in both MRPL and NLC. In fact, it has managed to close above 80.50 which is 61.8% retracement considering a low of 48.75.

The next target for the stock is its previous high i.e. 100.20.

Rashtriya Chemicals and Fertilizers Limited (RCF):

RCF manufactures various grades of urea, bio fertilizer, liquid micronutrients, methanol, sodium nitrate, sodium nitrite, ammonium bicarbonate, methylamines, dimethyl formamide, dimethylacetamide etc. Over the last 3 years, its net profits have been more or less consistent i.e. Rs.141, 149 and 148 crores.

The daily chart of RCF is displayed above. The stock, after making a high of 49.85 on February 9, 2007, was on a downtrend for about a month. Nearly after 4.5 months it has broken the previous high with very good volumes. The previous high should act as a support for the stock. It is also bullish on weekly charts. The next targets for RCF are 56.50 and 62.50.

Tata Sponge Iron Limited:

The company was initially set up in 1986 as a joint venture undertaking by Tata Steel and the Industrial Promotion and Investment Corporation of Orissa (IPICOL). In 1991 Tata Steel acquired the entire stake of IPICOL. Tata Sponge manufactures sponge iron with an installed capacity of 390,000 metric tonnes per year. Company’s net profits for the last two years have been steady at around Rs.22 crores.

In the daily chart of TATASPONGE, the classic “cup and handle” breakout, a bullish continuation pattern can be observed. It has taken about 6 months to form this pattern. The cup’s left peak of 132 was broken on Monday with good volumes. In weekly chart, the stock had formed a “double bottom” between January and April 2007.

The target after the cup and handle breakout works out to 168.

Varun Shipping Company Limited:

Varun Shipping is a private hydrocarbon cargo carrier in India with a fleet of 12 LPG tankers, 3 crude oil vessels, 3 offshore supply vessels and 1 product vessel. These vessels are either placed directly with the end users or in the pools wherein the managers of the pool arrange for chartering of these vessels. The company had declared a net profit of Rs.141 crore for the year 2006 – 07.

The stock is bullish in both daily and weekly charts. It has been consolidating over the last 2 months and on July 23 it had broken out with reasonably good volumes. Minor resistance exists at 71, after which the targets are 75 and 83.