Pithaly

11th March 2008 Update: Infrastructure shares look good. Market in a bounce. Recoup losses.


10th March 2008

There is no doubt left in my mind that a bear market is underway. Other than short covering in the Sensex, a 50 basis point interest drop in the USA (which itself would have very little positive effect on the market) and considering that we are still highly coupled to the world financial situation (if not its economical situation), I think we are now headed to the Mid August '08 lows when the Sensex was 14,000.

To this effect, I sold off a few minor midcap holdings today at approx. average 20% loss as energy release.

The reason for this minor sell-off if I may call it that, is the fact of what I now term as the :Inverted Sparrow Head", a technical term that I have invented(!). Wild as it may sound, but I have seen at the beginnning of the bull run, a bollinger band formation which I call "Compression" shaped by a narrow bollinger, which becomes pincered and shaped like a walnut- breaker) leading to a huge initial expansion of the share price (in the shape of a "Sparrow Head"), and then the formation of a "Beak", which leads to some consolidation, and once agin into a larger expansion.

The slope of the beak has many times indicated the bullishness of the next move. for example, in the case of a pharma co., the slope of the beak was upwards, which lead to a huge upmove subsequently.

Currently, many shares have now an "Inverted Sparrow Head" exactly inverse of that formed during the bull run. The 'Beaks of many shares is now not horizontal, but pointing downwards. This implies that after trading for a short time within the narrow bollinger, a large break-out has to occur downwards, and keeping in line with the overall market heading towards 14,000.

The double (long term and short term) bollinger buy signals (first on the daily charts, and then on the weekly charts) would be the first indication that one could risk a purchase. A single bollinger band on the daily charts as has occured today in SBI), may lead to a price closer to the upper bollinger, but no more, unless further confirmation of the long term bollinger is also available. The prime principal of "Safety of Capital" (and not mazimising of profits) applies to the bear phase, so it is prudent to only make purchases on double bollinger band buy signals on the Weekly charts and not on the daily charts and hope that they are not false signals. Such signals still seem to have some time to be generated.

It pays to be very stock specific this time, and also to purchase for the longer term, leaving the shorter term buys in Sensex scrips and not in mid caps. That does not mean, however, that we should totally lose track of the mid caps sectors, andhence miss out the quick 25% rise from bottoms.

The one sector, which is not exotic (like solar cells) and which is bound to do well in the future is Infrastructure. To maximise profits one needs to look at the fundamentally good and emerging midcaps in this sector.

Two such midcaps, I feel, are GMR Infra and J P Associates. I'm sure there are more. So, a strategy would be to inddenitfy fundamentally good emerging mid cap scrips, which have a running business, and whose projects are soon to go on-stream (as is the case of GMR Infra with their Air port projects, and take a purchase decision on double weekly bollinger and buy signals with about 25% of the total investment you intend to do in a particular scrip so that a false signal is downplayed.

Short term plays may be done on commodity scrips like ONGC and yes, SBI.

HNI individuals should book some of their long term profits now, and channel the money into gold ETFs.

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