Caps NH-NL Index

Worked on a new big picture indicator, the Caps NH-NL. It was Dr. Alex Elder’s new development on the existing NH-NL index.

The idea behind this concept was that, when new high’s or lows come in the market, are they coming from big stocks? If they are, then the commitment on the direction of the market is high or low according to the prevailing trend.

For example, when the total market cap of all the stocks that give a new is bigger than the total market cap of stocks that are giving new lows. This means, bigger stocks are contributing to the market on its upward journey.

Large money is chasing the market upwards, we can continue to look for buying opportunities. If it is the opposite, then should sell the market.

There are divergences which are even more powerful signals. When the market is going up, New highs are slowing down and the market cap of those stocks that are coming to high’s are lesser, we get a divergence on the index. It gives us an early signal that, the market is getting weak on the upside.

Need to get cautious on the long position, look for exits and prepare to build short positions.

As I am writing this article, we have a market that is showing multiple divergences on the NH-NL indicators. Primary NH-NL indicators on shorter time frames are having multiple bearish divergences, and along with the Caps NH-NL is also diverging.

When a bunch of market tools show a signal, it is a hard warning for the market participants, to get cautious.

It is my observation as also of other long term players in the market, at the times when there is warning signals coming in the market, that is the time when the whole market is gung-ho about it. Like what we have now, it is getting euphoric. Probably attracting more people to lose.

Here is the index of Caps NH-NL done up to 24th July 2020.

Mutual Fund Leadership – Tech Funds

Pharma Sector is showing weakness, Technology sector has began taking that space. Pharma has above 7% open profits in just 8 weeks. Recommend profit booking on 50% of position. HCL, Infosys, Wipro are current leaders. Funds having high exposure to tech stocks are good to invest in the current markets.

Britannia – Eat Healthy, Earn Profits

 

Britannia announced 117% profit growth back by a 26% sales growth. A big surprise to the markets. The reasons behind how such big numbers will it sustain? Can we invest now in this stock?

The Next price range is likely to be around 5000 to 9000 in the next 5 years based on the current growth numbers. Invest in tranches, it is a pride to have this stock in a portfolio.

Pharma 7th Update. Locking profits

Pharma Sector is doing extremely well and funds have been adding gains. Stop loss has moved up to lock about 3% gains on the investment from the time the funds were recommended.

As the sector is showing signs of weakness, it is good to book some profits as the positions are climbing up. 10 to 25 % exits will help investors book some gains and run the balance position with stop loss protection.

Reliance – costliest Oil company

With the run up in price of Reliance stock, which nearly doubled in three months, post the pandemic lockdowns. Reliance has become the costliest Oil company on the planet.

Market cap of Reliance has moved past 12 lakh crores, where the stock PE is at 40. On the business side, both sales and profits are down substantially when compared to last year.

This is not a COVID impact, Reliance business on Oil could have taken a hit as consumption dropped in the lockdown period. Even this for the March 2020 quarter, should not have declined as the lockdown was only for 10 days in the month of March.

Once market became jittery about the debt that Reliance carried, promoters got into fear mode and began selling rampantly. Now, the whole world has a share in the company. Google, Facebook & Microsoft kind of ownership. Also with ARAMCO, now the promoters hands are tied on future dreams.

They will not be allowed to blow money and kill competition. One very good blessing in disguise for the competitors.

With so much cash in their kitty, it cannot be kept idle. After clearing debts the future profits of Reliance, the parent of the telecom venture will get moved to some other activities, not into Oil business for sure.

They are now planning to sell stake in Retail too, looks like, apart from the stakes they will hold in the Oil, Tech & Retail, this company will become a bigger financial services firm which will invest into new technologies through the start-up ecosystem.

The next big challenge is for the PE & Venture capital firms globally, as Reliance will compete in bidding to acquire stakes globally into new businesses.

How good their dictatorship mindset will play in the totally competitive space that they are venturing will get known in a couple of years.

Reliance stock is not a favourite among institutions. All the holdings that Mutual Funds hold in the company are process based. Very few fund managers have a liking to this stock because of all kinds of clueless decisions that the management makes.

All of these views expressed are our beliefs, which can differ largely against others.