- Wealth PMS (50L+)
Learn about the basics of Technicals and Price Action at the MarketVision Chronicle (Jul 23). (Registration required, free)
After last week’s session on fundamentals, we tackle other entry strategies – the technicals. This means a field where you look at price and volume only, not considering a company’s fundamentals.
There is a saying in the Indian markets that “Bhaav hi bhagwaan hai”, or “Price is God”. The price at which a company is bought or sold is the company’s value, and everything else is just an opinion.
Prices are reliable. Fundamentals are not. You can be fairly accurate about the price of a share, but for earnings or EPS or revenues you depend on the management. Often, management tweaks figures, and there is no way for you to find out.
Trends and Reversions
Stock prices generally are in two modes – trending and “doing-nothing”. Either they go in one direction – up or down – with a few wiggles here and there, or they go to one extreme and revert back to a mean value.
In the last 12 months, the Nifty has moved a pathetic 4% (From 5400 to 5634). In the meantime it saw an upmove to 6300 and a downmove to 5200. We’re mean-reverting as a market. Even in this market you see serious trending moves: TTK Prestige went from the 1000 levels last year to 3,000 today, and RCOM has fallen from 200 down to 94.
In a trending situation you would catch breakouts from a range or a new all-time high or low, and ride that trend. For mean reversion, the idea is exit when valuations go beyond an extreme. I’m a trend-follower, and in that sense biased towards working with trends.
Support and Resistance
If you buy a stock at Rs. 100 and it falls back to Rs. 80, then the thought on your mind might be “I’ll get out when it touches 100 again”. If the stock moves up, the 100 level is the point at which you and perhaps other past buyers like you will exit, effectively keeping the price hovering at or below 100 – this is called a “resistance”.
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Biocon Q1 net profit lags forecast, shares fall, Biocon, which was set up by Kiran Mazumdar-Shaw in her garage in 1978 and which the market values at about $1.7 billion, has seen the stock fall nearly 12% this year, compared with about 9% fall in the broader market.
Higher fixed income yields, range-bound mkt and aversion to complex investment products are prompting HNIs to avoid structured products.
Past Short Takes:
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