Can this 'Hammer' stall the fall? ? ?

Dear Friends

The Nifty's today's move was quite interesting. After crashing almost 11%+ the market reversed direction (could have been anticipated on the intraday chart) and closed near it's previous close - giving what the japanese call a'hammer'

Usually this pattern is suggestive of exhaustion of the current trend ( which is down) and one can expect to see some buying momentum at least for the short term.



Technically a break above Nifty 2605 now can lead to a rally near the 2800 and 3000 Nifty zone. Use price fall now to add to your positions.

And yes - don't forget that 'hammers' and 'inverted hammers' have been successful in reversing trends in the past !

Happy trading !

CA Rajiv D Khatlawala

Hey Technicians ! Its time to check the fundamentals!

Let me be frank.
I have always believed that fundamental analysis works only in bull markets and that too merely because someone needs to find out a convincing reason to justify the increase in stock prices.

All along the past four years of bull market from 2003 – 2007, corporate fundamentals were surely getting stronger and the Indian growth story was justifying the rise in stock prices. But just reflect. All along, however, the major reason for the stock prices to rise dramatically was the unabated flow of foreign money.

Corporate fundamentals were but a small reason for the increased stock prices. Good fundamentals would have driven the price of, say, Reliance say from Rs 600 levels to say Rs 1500 or even Rs 1800. But it was surely the foreign money chasing stocks, that took the price to the ‘excessive’ Rs 3000 plus levels. May be, in case of other stocks, the blow up was much larger.

It was a clear case of prices overshooting much beyond fundamentals. What we are currently witnessing is then a ‘correction’ of this excessiveness.

Followers , and believers ,of the science of technical analysis, like me, were finding it hard to believe it; while at the same time the growing breed of fundamental analysts came up with equally convincing reasons to actually justify the price excesses!

Even as the technicians saw ‘topping patterns’ like the ‘Head and Shoulder’ pattern on the Sensex , the fundamental analysts continued to believed that achieving a 8% plus GDP growth for the next few years was ‘easy’ and obvious!. These growth rates were even factored in their EPS projections!

Yes, yes, I do sound like a thorough critic of fundamental analysis. But that is only partially true. In fact, as a hard lined follower of the science technical analysis, I believe that it is actually time now to refresh our knowledge of fundamental analysis.

Every bear market sows the seeds of the next bull market and at this current juncture; we need to seriously carry out a ‘techno-fundamental’ analysis which would be able to tell us well in advance about the next Bull Run. We need it in order to tell us the most likely price and time reversal signals, and also the stocks and sectors which will lead the next bull market.

When these things will start, time- as well as price charts - will tell. Right now I am busy carrying out techno fundamental analysis – something I had not done in the past couple of years!!

Friends - Do give your feedback on the articles.

CA Rajiv D Khatlawala
Head of Research - Jhaveri Securities Ltd.

The Paradox of RISK

That investments do carry a risk with them was reiterated by the current market sell off where not only second line stocks but even the so-called ‘bluechips’ or ‘bell weather’ stocks fell like nine pins !

Just ten months back, who would have imagined in their wildest dreams, that India’s most popular stock - Reliance Industries, quoting then at Rs 3000 plus, would be available to investors at near a third of the price – at Rs 1300!. Or, for that matter, even Larsen, the ‘robust’ company known widely to have an order book position full for the next three years would fall to third of its value, from the high of Rs 4500 to the current pre bonus equivalent price of 1600 ( ex bonus price is Rs 800).

Examples galore. Many frontline stocks in the ‘hot’ sector of Real Estate like DLF have seen their prices being eroded by more than 75% ! .

And ask anyone whether they would want to buy these stocks, now that they are available at one-third or one-fourth of their peak values? The most likely answer will be a resounding NO!. Today people feel that the ‘risk’ of investing in stocks is high.

This brings us to the paradox of risk – When the perceived risk is high (like today), the real risk is actually low. Conversely, when the perceived risk is low (like what it was before the Jan 08 fall), the real risk is actually high.

It is this psychology of the crowd that a true investor has to capitalize on and take advantage. These are the extreme cases when contrarians can benefit.

It is a fact also that markets generally react extremely during up trends as well as down trends. Up trends give rise to mass euphoria while down trends provide panics and fear. And the investor who is able to identify such market conditions can benefit hugely from it.

In the current scenario, we are well witnessing the signs of a panic among investors. The media too is adding fuel to fire as headlines scream of the markets hitting new lows and of disappointing pictures of market crashes.

These could well be signals of perceived risk today being high; and therefore the real risk being quite low.

CA Rajiv D Khatlawala
Head of Research - Jhaveri Securities Ltd.

Markets - the supreme teacher!!

The US meltdown, triggered by the collapse of Lehman Brothers, and the consequent fall in the world financial markets has had multiple repercussions. However, perhaps this fall may act as a good lesson to investors for the future – presuming they remember it the next time!

The first lesson which investors must learn is, simply, that all investments, whether in bluechips or other stocks, will and do carry a risk. The past four year rally in the world stock markets made investors presume that higher returns came free of cost! It may be important not to forget that any investment carries risk – some have lower risk while some like equities have higher risks.

Secondly, as investors, let us all recognize and accept that what goes up, comes down and consequently what goes down, comes up too. In January this year, not many investors would have been ready for such a sell off and such low prices as we see today. Similarly, a year from now, probably many investors may perhaps realize that the 10000 Sensex level was a good buying opportunity, which should not have been missed!

Thirdly, such sell offs in the stock markets present tempting value picks to investors who have the capacity to hold. As the saying goes “Buy when there is blood on the streets”. Not too far back in time, panics during the post Harshad Mehta Scam and even the post ICE sector meltdown, gave great value picks to investors who had the waiting capacity.

Fourthly, while stock markets the world over have fallen heavily, precious metals like Gold and Silver saw a bullish trend. Even the USD against the Rupee (USDINR) saw a good 20% rise. This suggests that, in future, as investors we need to be more diversified in terms of spreading our portfolio to different asset classes and not just equity.

And the fifth learning for the investor may be to remind himself that this is ‘not the end of the world’. Historically speaking such crashes have occurred from time to time and more importantly, they have acted as a base for a much stronger economic growth in subsequent years.

CA Rajiv D Khatlawala

Dollar - on a new high!!

The NIFTY today gave the long standing target of 3650 and fell further to close at 3602. The Sensex has in the meantime broken below the crucial 12000 mark and has closed at 11800. While we may have some relief rallies, we should expect 10500-10000 levels in the next few weeks.

The USDINR too has picked up pace and is nearing 48/- . Currently it is quotaing at 47.85 and seems to be targeting its all time high at 49.08. Nowadays a Rs 1/- movement in the dollar seems quite normal and volatility has increased dramatically.



On the charts though we see a negative divergence, you would also clearly observe that the divergence is not getting 'confirmed' as the swing break out has not occured. This suggests the possibility of a further rise beyond Rs 48/-.

Any long positions will now have a stoploss of Rs 46/-

I presume it is the right time to open the currency futures trading account with the broker!!

Happy Trading

CA Rajiv D Khatlawala

Lehman Bros and the 'Black Swan'

The Lehman Brothers collapse – a confirmation of ‘The Black Swan’
(By CA Rajiv D Khatlawala )
The theory of the Black swan was described by Nassim Nicholas Taleb in his best seller book – “The Black Swan” published in 2007. It is an interesting book which examines the impact of the highly improbable.

The term Black Swan comes from an ancient Western idea that ‘All Swans are White’ and hence ‘the black swan’ is something which could never exist; something which can never occur. However when Black Swans were discovered in Australia, the ‘commonly accepted belief’ was questioned.

Taleb, in fact, claims that almost all events in world history which are of consequence have come from the ‘unexpected’ and the unplanned. He cites that the attack on World Trade Centre is one such historical event which could not have been anticipated but it has consequently and subsequently changed and influenced world events dramatically.

Consider the latest financial turmoil we all find ourselves - the collapse of the 158 year old ‘robust’ financial firm Lehman Brothers is nothing short of a ‘Black Swan’. No one believed that, such a thing as this would ever happen. There was a ‘commonly accepted belief’, that such huge companies cannot go bankrupt, no matter what happens. But it did happen and I think once more we seem to get a living proof of ‘the impact of the improbable’.

And it is beyond doubt that this ‘black swan’ event, has and will, change financial history (and probably even world history). It is only hoped that we do not have a series of such ‘black swan’ events. We surely don’t need so fast a change in world history!!

It may not be wrong to say that even in the financial markets; we should all expect the unexpected! As investors and traders, we need to factor in the unexpected – the unpredictable, and only then we shall have consistency in investment profits.

CA Rajiv D Khatlawala

Silver - - not as worth as gold !!

Silver on the MCX (as also on the comex) has been underperforming Gold. Usually my observation has been that in uptrends, Silver outperforms Gold. But the markets have the notorious habit of proving traders wrong. It is the traders who have to be careful in 'generalizing'an observation.

Lucky for me as I was constantly tracking Gold rather than silver.



The chart shows that Silver on MCX has a strong resistance near Rs 21500 and long term support near Rs 18000/-. Also even though the recent price move has been downward, the positive divergence on the charts indicate upward bias.

Happy trading (and observing)

CA Rajiv D Khatlawala