Saturday, August 3, 2013

Updates on Delivery Based Recommendations

In the last couple of posts, I had mentioned JP Associates [Accumulation Band 35-48 with SL below 35 on closing basis]

Since the broader context of that post was Nifty / BankNifty outlook, some of these charts were missed

JP Long Term Chart
Going below 50 was near certain when prices closed below 65 on closing basis. If we look at the 35 level, that was the point from where a very long term breakout came through during the 2007-2008 rally. Subsequently, during the 2 corrections, the 35 level held out and though the stock never achieved its peak prices, it used to comfortably bounce from 35 and hit 90-100 levels regularly. In fact for almost 4 years now, the broad range has been 35-45-85-105 as critical supports and resistances on longer time frames.

Hence I was categorical of the Stop Loss @ 30. Now that 30 has been taken out on closing basis, it is very difficult to predict where it will find a bottom. Of course some dead cat bounces will keep coming in but strength can only be confirmed when 50 is taken out on upside and we also have to look at how the broader markets perform. For all that one knows, this stock is pretty much likely to join the likes of Suzlon, Opto Circuits, Educomp etc. Depending on how prices pan out in the next 6 months, it is highly likely that JP Associates will be taken out of the Nifty 50 Index next year.

However, just like Suzlon, it may continue to be in the FnO space as these counters are highly liquid in the FnO space with large lot sizes enticing a lot of speculators to make a quick buck.

Tata Steel

Daily Charts
Monthly Charts
Taking into account dividends and some throw unders, the 200 band is the last point of hope on Tata Steel. Once 200 gives way [especially on Weekly basis], the next logical destination is 150 levels where multiple supports and breakouts have taken place. If 200 is taken out [dangerously close to getting there], one should simply exit and re-enter at 150 levels. The annual dividend is around 15 on average and Tisco has a lot of positive factors in the domestic market space. However, these fundamentals apart, we also need to look at technicals and if 200 is taken out, one should just exit the delivery based positions.

Another point to remember is that over longer time frames, it is Tata Steel that leads the direction of the Nifty followed by BankNifty and then the other sectors keep churning. Steel is most critical for all manufacturing based companies and it is only the proportion of steel dependence that varies from company to company. Banks signal the flow of credit [in and out] and when banks are stressed, it is pretty clear that the economy is in a mess.

I personally don't believe in holding on to stocks because I felt it was a good buy or just to keep them in hope. As my angel critic always keeps reminding me, an exit plan is a must regardless of whether it is a trading position or investment position. There are some upside targets and there are some emergency exits to be defined. I would rather humbly take a nominal loss on my holdings and salvage what I can than just watch with hope to see the entire investment wiped out.

This is also the very reason why I keep insisting on keeping maximum exposure to the index than individual stocks. Suppose one has x-number of NiftyBees and y-number of BankBees, it simply does not matter which stocks move into the index and which ones move out [this happens every year]. Also there is a very strong co-relation between stocks that are marked for moving out and their falls [Suzlon, Siemens, RPower etc are all examples how much more they were beaten down once the exchange decided to disband them from the Index] The same will happen in BankNifty. The respite for investors; 1 Unit of NiftyBees = 10% of Nifty Value at any given day and likewise for BankBees. The only downside is that the dividend payouts are one in 2 or 3 years @ 10 per unit.

Also, whether it is the index or individual stocks, the falls are far more faster than the rise [literally a bungee jump] Take Wockhardt - 1 year of gains were wiped out in less than a month. MCX and FITL were meant to go to doldrums anyways but what has been very disturbing is the lack of circuit breakers being placed until late into trade yesterday. Whether the breaks would have made a difference is a different story but it is a clear case of games being played by big fish to go one up.

The FMCG stocks will crack later if not sooner as the valuations are stretched and same is the case with the IT pack. Stocks like Apollo Hospitals and Fortis have generated good returns but going by the under-lying assumptions in the prices, they too will sooner or later become the next Ranbaxys and Wockhardts.

To summarize, conserve cash and make use of FDs while rates are high. Use falls as buying opportunities but focus maximum on indices than individual stocks right now. 

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