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| Post budget view - Coppocks indicator re-visited |
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| 06/07/2009 - Vijay Bhambhwani
The budget has received a thumbs down from the market players as the proposals failed to live upto the lofty expectations of the participants. However, it should come as no great surprise for the technical analysis followers as I had advocated in DNA Money - May 19 2009 (Coppocks indicator, don't be a sucker) and DNA Money - June 19 2009 (Gaps need to be closed). What the rally had chose to overlook in the irrational exuberance was a plain vanilla fact - the intraday high of May 18 2009 was 4384 on the Nifty spot, the day the indices recorded twin upper circuits, was barely surpassed in the following month long trading period. A typical bull who initiated fresh longs on /after May 19 2009 did not really make serious money on the long side. The Nifty failed to stay above the 4450 level which I had advocated as a make or break threshold for the trend determination process. That was a warning sign that should have been noted by the market participants instantly.
For any rally to have legs, the initial upthrust needs follow up buying support which was sorely missing in the markets. My teen aged son understands that a bull market comprises a rising tops and bottoms formation - a pattern that was missing after May 19 2009. The rallies were sporadic and the chart pattern was jagged. The Nifty made lows of 4450 levels in March & June 2008, thereafter, the markets suffered a meltdown. For the market to remain in bullish territory, the bulls should have been able to defend this threshold or be beaten. The verdict has been that of weakness. Had the markets indicated a bullish pattern, the Nifty was unlikely to go past the 4800 mark as per Elliot wave studies. The bulls had a serious problem here of over head supply to contend with.
Now that the markets have indicated which way they are likely to go, we estimate the downside potential in the absolute near term. The entire rally that commenced in March 2009 should be taken as a single phase and a retracement analysis indicates the 3890 level as a first serious floor for the bulls to take comfort from. If at all the Japanese candle theory of a window being closed occurs, the Nifty can test the 3675 levels too. These are pessimistic scenarios and the markets are quite capable of shrugging off bearishness before such supports are tested to a decimal point. I would however look at the 3890 level to commence buying in dribbles.
In terms of sectors, I feel the diversified large stocks will rebound first as institutional support will be forth coming. The midcap sector (yardstick of retail risk appetite) may take a while in recovering as the retail player is likely to take time to recover from the shock of capital erosion and / or margin calls if leverage was employed to participate in the markets recently. Technology maybe relatively insulated but not necessarily gain significantly. Infrastructure, E&P, two wheelers, soil / water management / irrigation stocks, FMCG and entry level white good manufacturing companies may out perform the broader markets. Investors may safely assume a patient stance on the buy side as the immediate outlook is that of pressure and buy orders on lower levels are likely to get filled. The overall recovery that commenced in the markets is still in force and therefore deep discount bottom fishing is the preferred way forward.
Vijay L Bhambwani
Ceo - BSPLindia.com
The writer is a Mumbai based investment consultant and the author of the first commodity trading guide in the country. He invites feedback at vijay@BSPLindia.com
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