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You can read the piece here: Four Stocks Making New Highs, Market Breadth and Index Technicals: March 19, 2011.
Japan continues to be in the news and for reasons that aren’t positive. Let’s hope the crisis ends soon.
This is going to be a slightly technical newsletter. Understand a way to look at market breadth with the Advance-Decline line and the McClellan Oscillator, applied to our own Indian stocks. See what technical support levels Nifty will have if it goes further down. And finally, and importantly, in this down turn, four stocks making new highs!
Market Breadth indicators sometimes give you great feedback. Let’s take Advances and Declines. Advances simply means number of stocks who closed higher than the earlier day. Declining stocks means those that went down.
If you take this number – Advances minus Declines – for every day, and add it to the previous day’s A-D figure, you get the Cumulative Advances Minus Declines. Here’s a long term chart of just the Nifty constituents:
(Note: This is not yet adjusted for changes in Nifty constituents in the past. Working on it, but it won’t impact the graph very much)
The chart gives you the picture that the index doesn’t = the current drop takes us all the way down to levels last seen in March 2010 (which was a Nifty value of 4900, about 10% lower than Friday’s close). In comparison the Nifty has only fallen to the levels of August 2010. That means, really that on the whole Nifty stocks have lost a lot; only some of the index heavyweights have propped it up. Which is what you’d expect – Reliance, ICICIBank and Infosys form more than 25% of Nifty, and they aren’t down by that much since the highs of Oct/Nov 2010. The rest of the pack though has fallen off a cliff.
A look at the CNX 100 reveals even more damage:
We’re at an important support point – the current value of 5400 sees the past price bounce off it from both directions in the past, creating an important source of supply and demand (mentality: I’ll get out even…people who bought at these levels will sell at these levels to get out even, and people who last sold at these levels and felt miserable as the index went up will use this level to buy again).
The longer term graph is more troublesome though: If we consider the entire move from the bottom around 2600 to the top, and consider that traders follow Fibonacci retracements, the outlook is like this:
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In my last column on former McKinsey biggie Rajat Gupta, I wondered how a man of Gupta’s stature got caught up in the schemes of Galleon’s Raj Rajaratnam.
While the S&P 500 closed the day down, it rallied nicely from the open to the close. Below is a chart showing how much each sector was down at its low for the day as well as how much it rallied from its low to the close. As shown, Materials, Industrials, and Energy were down the most at their lows (which all came in the first few minutes of trading), but they also rallied back the most. (author unknown)
This week we have added a short take on What does 40% dividend mean?
Mutual Funds in India often declare dividends like "40%" or "20%" – and if it gets you salivating that you’re going to get 40% return on your money, you should stop right there and see this video.
Learn about what they mean when they say 40% and why you shouldn’t bother. Instead, what matters is a "Dividend Yield" and even that doesn’t matter too much (since the NAV falls after the dividend payout).
Apologies for the lack of enough videos. I’m working on it and should get more done in the next few weeks. We’re building an inventory of educational material that we will offer for purchase, and that’s made us take our eyes off the free ball for a while. Sorry!
Past Short Takes:
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