SENSEX at 40K – 2nd time

SENSEX has closed above 40K mark for the second time. Will the uptrend continue?

It doesn’t look like the momentum will continue as we have a slew of negative news hitting the market like the core sector output going down 5.20%. Under utilization of capacities not pushing private capex.

Rumours like new buyer in Yes Bank, fund infusion in Tata Motors, pushed up the indices. Markets also had a broad based rally as laggards did a catch up as the bottom for the market is now established.

What next?

All the big stocks that helped the markets move up have been showing tiredness on their price moves. There has been no big push on their September quarter results. All the profits that are coming in the results are mostly due to tax cuts for manufacturing companies and losses in the banking space again due to the same tax cuts.

Sales growth in the economy is slow. Off the results that are out so far, there is a little less than 5% growth registered. It is not a good sign.

What all of these developments are showing is that, we will have a market that will keep hovering in the range that we have established between July and October. Only if there is a significant buying power will the trend change for good.

At the same time, our markets will not breach the low we have established in the recent months. That assures of no big losses on the investments, while it requires patience to see gains.

As of now, there is no visibility of any sectors taking leadership, which is another concern. If the whole economy is a mixed bag, there will be more confusion than clarity.

So the wait continues…..

Why my SIP is Negative?

SIP returns can be negative for the first 2 to 3 years, give your investments time to work, say 5 or more years. There is no possibility of negative returns from SIP. India is in the cusp of a very big upside for both its economy and the markets. Do not disturb your SIP’s, stay invested, you will have very big gains to be made.

Buying opportunity when stocks hit new lows

When stocks reach for a new low, investors dump it, fearing that the price will reach even lower. And that is what happens in reality. When a stock reaches for a new high, it continues to reach for newer highs till there are no more buyers to push the stock upwards. This condition is a bull market. Same when the stocks reach for new lows and more stocks follow, it is called bear market.  When more stocks follow in the same direction, fear escalates into a bigger sell off.

As the market reaches its extremes, there comes a very good buying opportunity. That is, when a large percentage of stocks reach for a new low,  the whole market slides downwards. Taking along with it even some of the good stocks. These good stocks become attractive and give opportunity to buy for big gains that will come up almost immediately.

How to identify such opportunities?

Plotting the New High – New Low index for the market will help us get the picture of when there is opportunity to buy or sell. This index is the total number of stocks that hit a new high for the day and number of stocks that hit a new low for the day. The total of highs is subtracted with the total of lows, we get the New High – New Low index. Which is also called the NH-NL index. More detailed study on the NH-NL index can be had from Dr. Alex Elder’s book on New High – New Low.

Having the data plotted takes a little effort, we have been plotting the same for about 850 stocks that we track. From the daily values, we sum the values for the last 5 sessions to make it a weekly value and have it plotted.

These values are taken for 3 time periods to get a better understanding. Along with 52 week High low, we also collect data for 90 days and 30 days. This chart here shows all three values as a plot. We can observe that when 30 day NH-NL reaches past 1000 (Orange line in the chart), market gives a reversal. The sections highlights with yellow are the reversals.

An even more powerful buy signal comes when there is a divergence on the NH-NL index. Points marked with Green arrows indicate where there were strong reversals.

When we have the 30 Day NH-NL move past 1000, you can begin checking charts for stocks that show strength on their prices, like having a bullish divergence on the histogram or the MACD lines. Get ready to buy when the down side move is completed. When they reverse their direction in few days they give very good profits.

As we are writing here, there is one such reversal that is in progress. And in the last 1 years we have had 9 such opportunities. Can we expect the same to repeat every year, ideally not. NH-NL nails bear market bottoms, where after a weakness, market recovers for a short period before going down again. Using NH-NL, we can identify such short term reversals and profit from it.

IN a bull market, we can use the divergences to exit our long positions before the markets slide and take away most of our gains. Regions marked in Blue on the chart were conditions where NF-NL had a divergence to the price movement. As price reached for a higher high, NH-NL reached for a lower high, giving us first signs of weakness and alert to tighten stops on long positions.

Therefore, when market reaches for the low and many stocks are giving new lows. It gives a good buying opportunity. We are not doing bottom fishing here, we are identifying strong stocks in a weak market which will help us make some quick gains.

Where can you get NH-NL charts?

We will have it published on our website by mid-march, which will be live on daily data.

Why invest in SIP?

The advantages long-term SIP’s explained with the comparison to RD or one time investing. SIP helps have 1.50% more gains that one-time investment into equities for a period of 25 years. Against RD where an Rs. 1000 investment per month grows to 11.03 lakhs, SIP grows to 15.53 lakhs in 25 years. Where RD multiples the investment by 3.70 times, SIP’s multiply more than 5 times. SIP’s help creates long-term wealth with the minimum contribution.

Inside Our Portfolio – 2

This video talks about positions in Delta Corp, AU Small Finance Bank, Bandhan Bank, Bajaj Finserve, HCL Infosys, Himadri Speciality Chemicals, Sterlite Technologies, L&T Technology Services Going light on this week as there is no commitment to buy stocks, stops on existing positions getting closer to current prices indicates that market will take a breather. Having a little extra transaction cost is better to having weak stocks in the portfolio, getting in and out of stocks benefits in having a smooth equity curve, which brings confidence to invest more in the portfolio.

Inside Our Portfolio – 1

This video talks about stocks that are at advantage in our portfolio from the current result season. Intellect Design Arena, L&T Technologies, Sterline Technologies stocks in big rally mode. Trading positions in Himadri Speciality Chemicals. Top technology growth stocks in our portfolio helps us outperform the SENSEX by more than 3% this week even with 50% exposure.

Multi-Baggers in Pharma & PSBs

Turkish currency collapse and India staying strong brings confidence that India will continue its rally. When Large caps are giving new high’s, midcaps yet to catch up, which are trailing by 10% from their peak.

Midcap at the bottom of correction gives a bonus to current investors and the advantage that Mid caps have with average 3% additional returns against large caps, which when compounded bring more big gains.

SENSEX expected to reach 90K by 2027, where 1 lakh invested into SENSEX will be 2.25 lakhs & the same in Mid Cap will be 3 lakhs. For those who are investing now that is a bonus of 25K. Mid cap will give 225% growth for the next 9 years.

Pharma & Pub Sector Banking sector are likely multibaggers for the next 2 to 3 years. Investing in sector specific Mutual Funds with exposure to Pharma & PSB’s will help in taking advantage of the same.

Sector based investments can be volatile, take only small exposure to avoid any shocks int he interim.