The Support & Resistances

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Prices move in a series of peaks and troughs. The direction of the peaks & troughs determine the direction of the trend.

These troughs are also called as support or reaction lows. The term is self-explanatory. It is a level that provides support to a falling market. It is an area or level which shows that buying level is sufficient to absorb the selling pressure. As a result, decline is halted & prices move back up again. Usually a support level is identified beforehand by a previous reaction low.

The peaks in a chart are also called as resistance. It is opposite of support and represents a price level or an area where selling pressure overcomes buying pressures & prices are turned back. A resistance level is identified by a previous peak.

In a uptrend, resistance level pushes that trend but are usually exceeded at some point. Similarly, in a downtrend, support levels pauses the decline but are not sufficient to stop the decline permanently. Each time a previous resistance peak is being tested, the uptrend is in a critical phase. Failure to exceed a previous peak is usually the first warning of the changing trend. Similarly failure falling below the previous low may suggest the change of downtrend.

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Psychology of support and resistances:

Assume that there are three categories of investors:
1. Long

2. Short

3. Undecided

Let’s assume markets move higher. The longs are happy but have regrets of not buying  more. Shorts now realize that they are on the wrong side of the market. The shorts want the prices to go back below to the support levels so that they could get out of their position. The undecided now realize that the prices will move higher and wait to buy the next dip in prices. All groups are resolved to buy. They have vested interest in that support area.

The more trading takes place in that support area, the more significant it becomes because more participants have a vested interest in that area.

Support becomes resistance

So far we have defined support as a previous low & resistance as a previous high. However, this is not always the case. This leads us to one of the more interesting & lesser known aspects of supports & resistances, “The reversal of roles”. Whenever a support or resistance level is penetrated, they reverse their roles & become the opposite. In other words , support becomes resistance and resistance becomes the support.

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After a significant penetration the trends reverse. But what is significant? Some are 3% for short terms, some use 1%. In reality, each analyst must decide for himself what constitutes a significant penetration.

Supports and resistances are fun, basic & logical. Understanding them is more logical & psychological than just looking at charts. Unfortunately, we live in a fast-paced world of financial markets, where we tend to rely heavily on chart terminology and short-cut expressions that overlook the underlying forces that created the pictures on the charts in the first place.

Aramco – The Giant in a tiny cage

It was January 2016, the markets were trying to absorb the shocks from the Fed’s and trying to avoid a bear market from beginning. It was around that time when the Saudi Deputy Crown Prince Mohammed Bin Salman went Public and announced his intent to list Aramco Ltd. This was big news which stunned the world. Everybody knew it was a historic step. The mere thought of listing shares of Aramco made public imagine the intensity of the IPO. Everyone knew that it would be the biggest IPO of all time. The reserves of the company was 10 times larger than those Exxon Mobil and the likes. All this after paying almost 90% of its profit to the Saudi government for crying out loud!

Everybody wanted to see this IPO through. Saudi prince wish to list 5% of Aramco’s shares and that sent ripples across the world. However it got people talking. Crude in January 16 reached as low as $27 per barrel. People thought that Saudi is taking this step to raise funds to meet its cash needs but reality was different from the perceptions.  Continue reading Aramco – The Giant in a tiny cage

Swaraj Engines – ICICI recommends ‘buy’

ICICI Wednesday

Swaraj Engines (SEL) is a leading manufacturer of engines supplying to the Swaraj brand of tractors under parent group M&M. It is into manufacturing and supplying of diesel Engines in the range of 22 HP to above 54 HP.

Yesterday, the analysts at ICICI securities came out with a research report on Swaraj Engines. This is an update to a previous report on Swaraj Engines. The report is a relative valuation, as the analysts have used PE ratio to come up with the price target of 2500. At CMP, there is an upward potential of 25% in the next 12-18 months. The company has seen a good run in the past two years. However the growth numbers haven’t been anything more than average. Partial reason could be that SEL has been paying huge dividends out to its shareholders and not invest it back into the business. The company has a very healthy balance sheet with no debt negative working capital and a robust return ratios.

With the back of a strong monsoon, growth in the domestic tractor industry, strong brand recall & capital efficiency of SEL, analysts at ICICI have given an EPS estimate of 84 for FY20. Assuming a PE of 30, the target works to be 2520. The returns however can be expected if the buying price would be below 2000.

For full report click on the link given below.

SwarajEngines_BUY_ICICISec_10.04.18

 

 

 

 

 

 

 

 

 

FINWEEK Initiative

FinWeek is an initiative to spread awareness about different aspects of Capital Markets. It is my belief that everyone deserves to know a few aspects about research which many MBA institutes fail to teach. The biggest aspect is Practical experience. I have seen people from some of these institutes become Equity Advisors who have no experience whatsoever with the stock markets. I’m sure most of them would do wellbut i would be a little hesitant to take advices about managing my money from someone who has no experience in doing so themselves. So what i wish to accomplish with this initiative is to bridge that gap of experience which every finance professional or aspiring finance professional should have. Let me assure you theory can only get you so far, out on the street it is instinct, numbers, stories, charts and things which you’ll not learn in B-schools.
The typical Finweek will be classified into 7 different topics for 7 different days :

  • Micro-Mid Mondays –
    Micro Mid Monday will see a series of stocks which belong to the MidCap or Micro Cap universe. One well researched Mid or Micro cap with my idea of the value of that stock and why it deserves your attention.
  • Trending Tuesdays –
    Trending Tuesdays will be all about things which are trending and what I think everyone should know about.
  • World Wednesdays
    In today’s world, the difference between developed and developing markets are fading away. Every Wednesday I’ll try to show you how.
  • Technical Thursdays
    Technical analysis in my opinion is one of the most intriguing subject in the field of finance. This study of charts will be covered every Thursday along with real life, real-time examples of Indian stocks.
  • Fundamental Fridays –
    Fundamental Analysis is the gold standard of Finance. Every Analyst out there must know how fundamental analysis works and should be proficient with it. So one well researched stock or a fundamental concept like DCF or Relative Valuation will be covered on Fridays.
  • Small Saturdays –
    Small Caps are risky but deserve our utmost attention as the growth today majorly is coming from the small caps of our market. So I will cover one small cap stock every Saturday from the big universe of Small Caps which deserves your attention.
  • Storytelling Sundays –
    Who doesn’t love a good story? Forget the good old number crunching for a day and lose yourself with me while I try to sell you a story. This will be the day where I’ll try to show you the magic of Numbers with Narratives.

THE FE-1000

The Financial Express comes out with a yearly magazine called the FE-1000 which was modified last year from FE-500. This Magazine lists the top 1000 companies across all sectors on the basis of Net Revenue and Market Cap. Unlike ET 500 which focuses on the top 500 companies in the country, FE-1000 goes a bit further and also gives credit to those rising underdogs that deserve our attention. There are two top 1000 lists, one by Net Revenues and the other by Market Cap. The first list gives importance to the Growth in Net Revenues and profits whereas the other gives importance to Market Cap and Efficiency Ratios. Although both lists are have an interesting mix of companies, I believe the first list is the one which everyone should have a look at who are looking for growing companies which have to potential to do well. There are a lot of companies in this list which i did not have an eye on. But after this list, I have a close watch on these relatively unknown stocks who have shown impressive growth.

So here is the list of top 1000 companies of FE-1000, the perfect place for anyone to start looking for good strong Companies to research on.

https://drive.google.com/open?id=1UDggyt0EMTWTvKkQD5FNJ0qOOfu7uget

Please do subscribe for more such interesting reads. Happy Investing..!!

Varun Beverages Ltd

A Juicy pick in this hot summer.

Varun Beverages Ltd is the second largest franchisee in the world (outside US) of carbonated soft drinks (“CSDs”) and non-carbonated beverages (“NCBs”) sold under trademarks owned by PepsiCo and a key player in the beverage industry in India. They produce and distribute a wide range of CSDs, as well as a large selection of NCBs, including packaged drinking water. PepsiCo CSD brands sold by them include Pepsi, Diet Pepsi, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up, Nimbooz Masala Soda, Evervess Soda, Sting and Gatorade. Continue reading Varun Beverages Ltd

Capital First – Motilal recommends Buy

Analysts at Motilal Oswal recently met the management of Capital First which aided them to come up with these estimates. The report prepared is a Relative Valuation as it uses multiples and ratios to arrive at the given Valuations. At CMP of 656, there is an upside potential of 46%. The stock so far has underperformed the broader index, but on the back 600+ branch network which will be built over 5 years, improving CASA ratio, customer assets to more than double by FY24, improving PAT due to synergies coming in better than expected, Motilal Oswal expects the stock to deliver a whooping 46% in the next 12 months and recommends a ‘Buy’ rating.

 

To download the whole report click on the link below.

https://drive.google.com/open?id=1ml5bxqTe53wy4YA7M1jVbb9xheLPu6uM

The Dow Theory

A person watching the tide coming in and who wishes to know the exact spot which marks the high tide, sets a stick in the sand at the points reached by the incoming waves until the stick reaches a position where the waves do not come up to it, and finally recede enough to show that the tide has turned. This method holds good in watching and determining the flood tide of the stock market.” – Charles Dow

Charles Dow, also considered as the father of Technical analysis, took the analogy of ocean tides to explain the pricing of stock markets. Charles Dow gave us the first Stock Index The Dow Jones Industrial Index and The Dow Jones Rail Index. Ever since, the Dow Jones has been updated numerous times by the Wall Street Journal. Charles Dow never published a book to summarize his work, but even today his theory forms the cornerstone of the Modern day Indexes and Technical Analysis. The Dow theory was the basis to all the other Indices across the world and is also applied to Indian Indices, Nifty and Sensex.

Continue reading The Dow Theory

Market Surges In Early Trade

Domestic stocks saw a gap-up opening tracking firm Asian stocks. At 9:30 IST, the barometer index, the S&P BSE Sensex, was up 375.33 points or 1.14% at 33,394.40. The Nifty 50 index was up 125.95 points or 1.24% at 10,254.35.

The S&P BSE Mid-Cap index was up 1.33%. The S&P BSE Small-Cap index was up 1.57%. Both these indices outperformed the Sensex.

The market breadth, indicating the overall health of the market, was strong. On the BSE, 1,459 shares rose and 197 shares fell. A total of 41 shares were unchanged.

Overseas, Asian shares were trading higher as optimism grew that the US and China will step back from the brink of a trade war. Representatives from China and the US left the door open for a negotiated solution to avoid tariff proposals that wouldn’t take effect for months. Markets in mainland China, Hong Kong and Taiwan were closed for holidays.

China’s tariffs would place 25% duties on major US exports to China including airplanes, autos and soybeans, covering 106 categories of products and affecting $50 billion of goods. The announcement followed plans by the Trump administration to impose tariffs of 25% on Chinese products worth $50 billion, on top of levies introduced on steel and aluminum last month. Retaliatory Chinese levies on US pork and fruit came into effect early this week.

US stocks closed sharply higher yesterday, 4 April 2018 amid heavy intraday volatility as investors speculated the likelihood of, or the potential impact from, a trade war between the United States and China.

Traders and investors are awaiting the outcome of the Reserve Bank of India’s (RBI) monetary policy meeting. The RBI’s two-day Monetary Policy Committee (MPC) meeting began yesterday, 4 April 2018 for the first bi-monthly monetary policy for 2018-2019. The resolution of the MPC will be announced at 14:30 IST today, 5 April 2018. As per reports, the central bank is likely to keep interest rates unchanged in the first monetary policy review of the current fiscal year, amid a gradual recovery in growth and easing inflation.

Interest rate sensitive stocks in focus ahead of RBI’s rate decision

Shares in interest-rate sensitive sectors such as auto, banking and realty will be in focus ahead of the Reserve Bank of India’s (RBI) monetary policy decision today, 5 April 2018.

The RBI’s two-day Monetary Policy Committee (MPC) meeting began on 4 April 2018 for the first bi-monthly monetary policy for 2018-2019. The resolution of the MPC will be announced at 14:30 IST today, 5 April 2018. As per reports, RBI is likely to keep interest rates unchanged amid a gradual recovery in growth and easing inflation.

In its last meeting on 7 February 2018, RBI decided to keep the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6%. Consequently, the reverse repo rate under the LAF remains at 5.75%, and the marginal standing facility (MSF) rate and the bank rate at 6.25%.