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CM Strategy

Sensex at 18K, My Current Momentum Trading Status

The Sensex broke the 18,000 mark today, and was up around a 1000 points from its lows. The Nifty broke 5300 and closed strongly too. The amazing thing? Apart from the many records this has broken, the markets closed up when the sentiment seemed to be negative at the start of the day.

It seemed like the 18K mark was not too far away (a comment I made on Sep 27 put the timeframe as two weeks from that date) but the momentum still looks strong enough to carry this much further.

So what’s the deal? Firstly, this is results season and either a) people are expecting good results or b) some people already know the results through some leaks and are pre-empting a buy. The third option c) is as follows.

FIIs have put in more than 1400 crores today as well. That’s a 2800 crore investment in two days. That’s a lot more money than they used to put in a month! So option c) is: FIIs have rated our market higher than we are willing to rate it.

Consider this: Reliance, which has had a dream move to 2600, is still trading at a forward P/E of 26. Granted, that’s one of the highest P/Es it has got, but it grows at more than 33% year-on-year! This quarter their revenues can be staggering considering increase in refining margins (is happening all over the globe), foreign currency gains (they have big foreign currency loans), acquisitions – one in africa and one in south east asia, and of course the IPCL merger. If we aren’t willing to pay at least growth P/E for this stock (i.e. P/E = EPS growth) are we really overvalued? You can do the same math for Bharti, NTPC, L&T etc.

China on the other hand gets a market P/E of 45. Given that we’re a similar economy, is 30 too high a P/E? That is a Sensex value of 24,000.

Note: I’m not saying that’s a target. What I’m saying is: What seems “overvalued” may suddenly seem to show value.

Overall, still a cautious mood out there, so the momentum will stay upwards. Tell me if any of you see signs of euphoria, of your cousins suddenly talking stocks to you or the TV anchors and analysts going really gung-ho about our “fantastic economy”.

Now for a step back. I’ve not yet published my trading diary (too lazy) but here’s the current status:

Kamat Hotels: At 202, gain of 30%. (Buy: 155)
Reliance: At 2600, gain of 30%.(Buy: 2000)
Suzlon Energy: At 1673, gain of 20%. (Buy: 1380)
Sintex: At 361, LOSS of 3% (Buy: 371)
Jai Corp: Bought today at 887.3 (No gain, no loss)
RIL Future: At 2600, Profit of 40% (buy:2421)
Nifty 5400 Call: At 110, profit of 40% (buy:67)

Closed Positions:
Marksans Pharma: LOSS of 12%, bought at 125, closed at 110.
Nifty Futures: Net traded profits of about 10%.
RIL Future: net booked loss of 0.1% (some up, some down)
RPL call: Loss of 18% (Options are very risky)
NIIT Tech: Net loss of 3%.

Overall, I’m up 10% from August 30, 2007. Which isn’t much because the Index is up nearly 19%! But I’ve had a lot of learning in the process, which I’ll mention in another post. Right now I’m moving to about a trade a day with a weekly outlook. It’s interesting!

  • Anonymous says:

    >Interesting conclusion:
    Overall 10% up against 19% for Index. Similar to active managed funds Vs. Index funds. Lessons for long term investors like me buy and hold upto my risk tolerance. I think I made more than 19% following this strategy.

  • Deepak Shenoy says:

    >Anon: You made 19% last month? That’s quite impressive if you have because most of the gains have come in a few stocks only, so most people have not gained quite that much.

    About my gains: yes, they do look bad on a month timeframe. But I’ve never traded this short a term, and I’m learning a lot of interesting lessons about momentum trading. My past has been to keep stocks for around a year.

    This strategy is short term and I will only have it till this craziness lasts, because after that I might go back to finding stocks that perform over a year instead. Right now I would like to take advantage of the momentum.

    Few positives though: I have made this gain by staying about 10-20% in cash throughout, and I’ve learned a fwe things about stop losses, position sizes, comfort levels of trading terms etc.

    Let me run this a couple months and through a downturn and see if it makes sense to stick with this at all. After all if indexes provide larger gains, why would one need to trade?

    Still, I think there is far more returns to be achieved through disciplined investing/trading than by indexing. Let’s see how right that is.

  • Anand Gadiyar says:

    >Your percentage gain for Suzlon seems to be wrong. Shouldn’t it be around 20%?

  • Deepak Shenoy says:

    >Anand: You’re right 🙂 Should learn to read through the math too! Thanks for that, will correct it.

  • Anonymous says:

    >Agree with Anon. From 2004, I have had only RIL – got RCOM and other siblings with demerger. Sold off everything and I have been holding RIL + RCOM since then (of course accumulating on long pullbacks).
    I think it’s a no brainer — instead of searching for “that one great stock”. The lesson I have learnt is, what runs fast in this bull market, continues to run even better. Don’t miss it. Contra bets don’t seem to work. At least they have not worked for many people that I know of. People are just getting back into black in some cases, whereas buy-and-hold strategy has made my portfolio tripled..with almost zero risk. All of my holdings stand well below 52 wk lows and below all-those-fibo-levels to say the least..

  • Anonymous says:

    Thanks for your similar view point. But getting a bit more deeper, my motivation for buy and hold strategy is need based.

    I badly require to withdraw 5% (Rs. 50,000 pm) annually from my nest egg for my survival considering dependents.

    After struggling with many ideas (loosing some money in KP scams)and reading many books I came to this conclusion that if I am not in the Equity Highway I will not survive (since we have no Government Social Security). Highway here means bluest of blue chips with liquidity which are the most sought after Indian Assets by FIIs. So I landed up with RIL, Bharti, SBI, Tata Index Fund etc. since June 2003. I never trade and waste my time and money on brokerages. My only guide is my capacity to bear any loss whatsoever on my portfolio irrespective of market conditions. In short risk tolerance.

  • Deepak Shenoy says:

    >I think anyone who only held reliance stocks probably made it big in the rally. REmember this is a peak – so if you “buy and hold” you will be happy if your holds contain the Reliance Pack. On the other hand, you could be holdign Ranbaxy from 2005 (when it was 550 effectively) or Arvind Mills from 1992 when it was 450 and you would probably not be saying what you are today.

    In fact, owning reliance, till about three months ago, you would have underperformed the indices (Reliance was around 1400 then).

    Still, you’re absolutely right – this is a no-questions-asked momentum drive, when you buy first and ask questions later.

    In my opinion, the best way to passively invest right now is to buy an index fund like NiftyBees. Even betting on reliance wouldn’t have been great, as it didn’t move quite that much today.

    Active trading can yield far better results – like today, I’m up around 10% more versus index move of 2%, the same as yesterday. I could fall much more as well, but that’s a risk I’m willing to take; a higher than double return is far more attractive.