Dear Investor,
Besides the fact that we are selling off agressively we should start looking out for bright spots of this correction. Looks like some margin traders were hit last week and could not hold their holding in hurry to cut loss. This correction was not due to any other reason but due to self correcting nature of markets. The dollar, Euro crisis or scam in India are side stories. The way this market was going up it has to correct. It had set itself up for such a correction that I was screaming since Oct 2010. If you regularly follow my blog then you know I had estimated almost 30% correction. The reason is simple. In bull market corrections happen. Finding the time of correction is immposible but they do happen. Correction are the foundation blocks of future growth.
Mass media and mass people are get extreme bullish towards the end of rally. I call it the suckers rally. It sucks all the bulls including the one last standing bull that also jumps in towards the peak. And what do they buy, anything that comes along their way without any plan to protect themselves. At the end they say, "Stocks always fall after I buy them". This behaviors has been repeating for ages and it will repeat again and again.
Technical damage is a new concept I would like to talk today. Technical damage is a damage visible in stock chart. Generally after a stock chart is damaged due to sharp correction, stock will not rise soon. After the damage there will be a pause. A pause that could be as long at 1 year to never and as small as few days. Important thing for you to notice is does the stock stop falling and holds ground at set price. This phase is called consolidation phase. During this stage decision of further rally or next sell off will be decided.
We witnessed similar technical damage in NIFTY chart below. Now we should wait for consolidation. Consolidation is a range bound trading wherein nothing happens and market just keeps sucking people in and out. This is a toughest time for day traders because there is no trend in this period. They win some and they loose some. I believe they loose more than what they win.
Now is the time to start looking for opportunities in this market. Even though technical damage is steep we should focus on stocks that are close to their long term support lines. SBI is not a buy right away but if it continues to trade between 2700 range for few more weeks then you can take a bullish call and buy some core holding in SBI. Pattern to look for range bound trading around 2700 and a positive close above 2800 should pave a way for your entry into this stock.
Look at the technical damage of IDFC. Just taking support on its secondary 400 day support red line. It has to hold these prices and reverse from here.
Federal bank will be ranked higher than IDFC because it has not corrected all the way back to its 400 day support line but it is taking support at 150 day line.
I would like to watch Deepak Fertilizer to add to portfolio. Its chart is inviting.
Lets see if Allahabad bank can go low to its 400 day support line. That will be the place to start betting on this one.
Closing note: I will be out of town next few weeks so will not be able to share my thoughts until new year. I want to wish all of you a very Happy New Year. Trust me 2011 is going to be great year for stocks and therefore for all of us.
In stock market, Money is made with TIME and not TIMING the market. We are in a historic bull market ever seen by mankind so don't loose faith. Corrections will bring opportunities. Accumulate good quality stocks. Do not invest money that you need within next few months or within a year. You should have capacity to absorb the corrections and hold on.
!! Happy New Year to all of you !!
I thank you for submitting your feedback at the end of this email. Request others who have not already done so please give your opinion and suggestions for 2011.
Anil
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