Quality Rather Than Quantity 

Bulls and Bears

In the recent past, Indian stock markets were moving only in one direction and that was up, up and up. The Bombay Stock Exchange Sensitive Index (Sensex) from the levels of below 3000 in 2001, moved to eye popping levels of above 21000 in Jan 2008. Big bulls of the stock markets were projecting the Sensex to climb to 40000 and even 45000. The markets moving in top gear put the brakes.   Sensex from the peak of 21216 in January 2008 moved to levels below the psychological level of 10000 in October 2008 to hit a low of 7697. Is the party over?   Yes, certainly for the near term. The big bears were projecting the Sensex to drop to 6000. Can the Sensex drop so sharply? Or have the markets already bottomed out? Yes, the markets had bottomed out.

Sensex from a low of 7697 in 2008 bounce back above 10000 to touch a high of 21108 in Nov 2010. From there Sensex corrected to a low of 15135 in Dec 2011. After consolidating for four years there was fresh breakout to take the markets to a higher orbit. Sensex has made an all-time high of 28822 in November 2014 and further moved up to 30024 in January 2015. The trend has turned bullish and the market up move continued to make another new high of 36747 in July 2018. How long can this uptrend continue?  This is a million dollar question. Only time can tell. It is a great comfort that the leading world stock markets are also trading near all-time high levels.

FII inflow

It would be good to analyse what lifted the stock markets to such high levels and the subsequent reversal of the trend. The economic reform process initiated in the early 1990s resulted in all round economic growth in India.  Earlier from being an importer, India could turn into an exporter of agriculture products and industrial goods. The growth in the service sector was even more impressive with huge success in the Information Technology industry.  This liberalised economic environment was conducive for the upswing of the stock markets. With huge inflow of funds from Foreign Institutional Investors (FII) the markets made impressive gains. It is observed that the stock market tanks when FIIs pullout money from India. FII inflow is in the region of $20 billion per annum.

Another player has emerged strong since 2016 is the Domestic Intuitional Investors (DII).  More investors have started participation in the stock market is a big way through DIIs. Nowadays whenever FIIs are selling, the pressure is absorbed by the DIIs.

Crude oil shock

The subprime problem was putting pressure on US and European banks and the stock markets.  Crude oil price from the levels of $40 per barrel in 2004, moved to levels of more than $100 per barrel in Jan 2008 and to the peak of $147 in July 2008. These factors were hurting the world economy and the stock markets. FII inflows dried up and later turned net sellers and the Indian markets tanked. The price of crude oil cooled to $70 per barrel in October and below $40 in December 2008 but that did not help the world markets. The global financial crisis was putting huge pressure on the world markets. During the up move of oil price the pain was for the oil consumers and with the oil price hitting low the pain had shifted on the oil producers. The global economic downturn had put pressure on the crude oil price. Stimulus package by many nations improved the world economy the oil price moved up to $100 per barrel in 2011. Oil producers increased the output and shale gas from USA also increase the supply and the price dropped close to $35 in 2016. The OPEC and Russia cut the oil production and pushed up the oil price to $74 in 2018. Now the price of oil is volatile and moving in the range of USD 65 and 75.

Long-term investment

Markets move in both the directions and what should be the investment strategy?  Investment in stock market can be a great pleasure if one is not greedy and not in great hurry to make money. Longer the time frame it will be that much easier to make money and conversely, shorter the time frame it will be that much difficult to make money. Besides, tax on long-term capital gains is nil or less than tax on short-term capital gains.

Fundamentals

It is always good to invest in fundamentally sound stocks only. This can save from severe capital erosion even during the bear phase. Besides, during the bad times also these stocks will not pose any liquidity problem. How can one identify fundamentally strong stocks?  Stock Exchanges have strong parameters to identify and to select stocks that can fit into the elite club of market index like Sensex and Nifty. Stock Exchanges also indentify and select strong stocks in different industrial sectors. It is always good to be with the market indices and the sector indices. The Stock Exchanges always keep watch on these indices and pull out the weak stock and replace with stronger ones.


Technical Analysis

Some people buy stocks based on fundamental factors and some people buy stocks based on technical factors. It will be prudent to take advantage of both fundamental and technical factors. Technical analysis of all the stocks in the Sensex, Nifty, Nifty Next (Nifty Junior) and Nifty Midcap and other broad index can be viewed in Market Index and stocks from different industries and other themes can be seen in Sector Index. Some index leaders and laggards can also be viewed.

200 day moving average

Technical analysis using simple 200 day moving average (dma) gives the long-term trend of the market, sector or any scrip. Stock trading above 200 day moving average indicates strength and will be a buy candidate with long-term point of view. On the contrary, stock trading below 200 day moving average indicates weakness and will be a sell candidate with long-term point of view. The trend is up when trading is above 200-dma and the trend is down when trading is below 200-dma. The ascending 200-dma line is most desirable and descending 200-dma line indicates weakness.
The stocks trading above 200-dma are shown in blue colour, stocks trading close to 200-dma are shown in orange colour and stocks trading below 200-dma are shown in red colour. When a stock starts trading close to 200-dma, the stock can further strengthen and move above 200-dma. Similarly, when a stock trading above 200-dma starts trading below 200-dma the stock can weaken further and go down. When a weak stock starts moving up, 200-dma acts a major resistance. In the same way, when a strong stock starts moving down, 200-dma acts a major support.

A logged in account of Yahoo Finance allows to retain the required settings in the indicators. Simple moving average (SMA) with 200-dma added in the indicator can be displayed in red colour and will be the smoothest line compared to all other lines.  Next 100-dma added can be displayed in green. Next 50-dma added can be displayed in brown. Next 20-dma added can be displayed in black. This line will move very close to the share price which is displayed in blue. The setting duration for one year gives daily graph. Longer duration when viewed will give weekly or monthly chart. In the same way lower duration when viewed will give minute chart.

100 day moving average 

Technical analysis using simple 100 day moving average gives the medium-term trend of the market, sector or any scrip. When 100-dma moves above 200-dma, bullish cross-over (golden cross) happens. In other words, when the magenta line moves above the blue line that is a positive sign. On the contrary, when 100-dma moves below 200-dma, bearish cross-over (death cross) happens. In other words, when the magenta line moves below the blue line that is a negative sign.

50 day moving average

Technical analysis using simple 50 day moving average gives the short-term trend of the market, sector or any scrip. Golden cross happens when 50-dma moves above 100-dma or 200-dma. In other words, when the green line moves above magenta or blue line that is a positive sign. On the contrary, death cross happens when 50-dma moves below 100 or 200-dma. In other words, when the green line moves below magenta or blue line that is a negative sign.

20 day moving average
There are short-term traders interested in using 20-dma or lower durations. It is observed that the share price does not move too much away from that the 20-dma for long time. Whenever the movement is too far, whether up or down the share price moves back close to 20-dma.

Volume

In the chart, below the stock price movement the trading volume are shown as vertical bars. Stock moving up with high volume is a good sign as it shows large participation. Stock moving up with low volume is not a good sign as it shows less participation. Similarly, stock moving down with high volume is not a good sign but stock moving down with low volume is not a bad sign.

 

Few points to remember

 

Buy cheap (sheep)
Sell dear (deer)

It is not easy to buy at the bottom
It is difficult to sell at the top

Invest with surplus funds
Never play in the market with borrowed money

Trend is your friend
Follow the trend

When market moves up, greed creeps in
When market goes down, fear sets in

Buy on rumour
Sell on news.

Do not try to catch a falling knife
It is easy to buy shares (possessive human nature) but difficult to sell shares.
Always chase quality stocks, not quantity.

 

Well folks, it’s time to invest with long-term point of view.

Happy investing!

 


 

 


 

 

Technical trend of Broad & Sector Index of BSE and NSE India

BSE NSE Broad & Sector Index  20Jul18 Chart Strength 22Jun18 Chart Strength 14May18 Chart Strength 9Mar18 Chart Strength 9Feb18 Chart Strength 12Jan18 Chart Strength 15Dec17 Chart Strength 10Nov17 Chart Strength 13Oct17 Chart Strength 15Sep17 Chart Strength 11Aug17 Chart Strength 7Jul17 Chart Strength 9Jun17 Chart Strength
S&P BSE SENSEX 2 1 strong 1 strong 11 11 12 14 16 11 20 14 6 6
S&P BSE 100 INDEX 5 5 5 13 9 10 15 17 8 1 strongest 9 2 2
S&P BSE 200 INDEX 6 6 6 16 3 7 10 18 10 3 10 3 1 strongest
S&P BSE 500 INDEX 7 7 7 14 6 8 8 12 9 7 12 4 5
NIFTY 50 3 4 3 17 14 17 17 20 5 10 13 9 11
NIFTY MIDCAP 50 8 8 8 19 25 18 9 8 16 4 20 14 18
NIFTY MIDCAP 100 9 9 9 24 23 6 7 11 21 6 25 18 19
NIFTY BANK 4 3 20 12 20 19 7 18 15 8 15 9
NIFTY IT 1 strong 2 4 1 strongest 4 3 4 1 strongest 6 28 23 30 27
INDIA VIX 14 12  14 15 19 14 15 13 11 11 15 10 10
NIFTY NEXT 50       21 16 13 12 15 15 5 15 10 15
S&P BSE AUTO INDEX       25 24 22 5 24 13 23 24 20 8
S&P BSE BANKEX       23 13 24 21 14 24 19 7 13 7
S&P BSE CAPITAL GOODS INDEX       18 15 19 23 5 28 13 18 23 16
S&P BSE CONS.DURABLES INDEX       4 18 4 1 strongest 4 4 2 1 strongest 16 13
NIFTY ENERGY       9 19 25 22 27 3 12 3 22 21
NIFTY FMCG       6 7 27 25 30 28 26 29 5 12
NIFTY INFRA       26 26 21 24 22 22 18 19 21 17
S&P BSE METAL INDEX       3 2 11 29 23 7 14 11 17 25
NIFTY MNC       5 1 strongest 1 strongest 2 13 17 9 2 1 strongest 4
S&P BSE OIL&GAS INDEX       22 22 28 20 26 2 21 5 24 20
NIFTY PHARMA       31 31 31 31 31 30 31 31 31 29
S&P BSE POWER INDEX       29 30 23 28 29 27 25 27 25 26
NIFTY PSE       27 27 26 26 28 23 24 26 28 22
S&P BSE PUBLIC SECTOR INDEX       30 28 29 27 25 29 27 28 26 23
NIFTY PSU BANK       28 29 30 30 10 31 30 30 27 24
NIFTY PVT BANK       12 10 14 13 9 12 8 6 11 3
NIFTY QUALITY 30       15 23 2 3 2 1 strongest 11 21 19 14
S&P BSE REALTY INDEX       7 17 16 18 19 25 16 17 7  
NIFTY REALTY       8 20 15 16 21 20 17 16 8  
NIFTY SERV SECTOR       10 8 9 11 6 14 22 4 12 10
S&P BSE TECK INDEX       2 5 5 6 3 19 29 22 29 28

 

Many stock markets in the world have made all time high recently

Stock Market Index 20Jul18 Chart Strength 22Jun18 Chart Strength 18May18 Chart Strength 16Feb18 Chart Strength 19Jan18 Chart Strength 29Dec17 Chart Strength 17Nov17 Chart Strength 20Oct17 Chart Strength 22Sep17 Chart Strength 18Aug17 Chart Strength 14Jul17 Chart Strength 14Jun17 Chart Strength
S&P BSE SENSEX 1 strong 2 5 6 4 2 5 7 7 8 3 2
NIFTY 50 3 3 9 5 5 1 strong 7 6 6 6 4 5
HANG SENG INDEX 11 8 8 3 2 4 2 9 4 2 2 6
KOSPI Composite Index 12     7 12 9 4 3 9 9 6 3
Nikkei 225 6 5 7 9 9 8 8 2 2 7 8 7
SSE Composite Index 13 12 11 10 6 12 6 10 5 1 strong 11 12
CAC 40 7 7 1 strong 8 8 11 10 11 10 12 12 11
DAX PERFORMANCE-INDEX 10 9 6 12 10 10 9 5 8 11 9 4
FTSE 100 4 4 2 13 11 6 11 8 12 10 10 9
Dow Jones Industrial Average 5 6 10 4 1 strong 3 3 1 strong 1 strong 3 1 strong 1 strong
NASDAQ Composite 2 1 strong 3 2 3 5 1 strong 4 3 5 10 8
IPC MEXICO 9 11 12 11 13 13 12 12 11 4 5 10
IBOVESPA 8 10 4 1 strong 7 7            
  • Stocks trading above 200 day moving average  laughing
        Shares are shown in blue colour
  • Stocks trading below but close to 200 day moving average smile
        Shares are shown in orange colour
  • Stocks trading much below 200 day moving average frown
        Shares are shown in red colour

 Yahoo Finance linear charts have been used for technical analysis with 200, 100, 50 and 20 day simple moving average for one year duration along with standard MACD and RSI.