Realty index slumps 44% , Capital Goods, Power among worst performers
Shares of mid- and small-cap companies were the hardest hit in the last two months, since the market started falling from its peak in January. The mid and small-caps have fallen 50.58 per cent and 69.34 per cent respectively from their all-time highs in January.
The benchmark index, Sensex, has fallen 32.75 per cent from its peak. The Sensex touched an all-time high of 21206.77 on January 10 and on Friday it closed at 15975.52.
Bull rally
“When the markets are getting corrected, people sell their holding in the small- and mid-cap space as they feel that the larger stocks have more value in them and offload small-cap stocks initially. This is one of the reasons why there is always a correction gap of 15 per cent to 20 per cent between the frontline and smaller stocks. Also, when the markets start rallying, there will be buying in the large caps first followed by mid-cap and small-cap stocks,” said an analyst.
profit-booking
Among the sectoral indices, realty was among the worst performer as the index crashed 44 per cent from its peak.Capital goods and power too performed poorly by 50 per centand 56 per cent respectively.
Ms Anita Gandhi, Head Institutional Business, Arihant Capital Markets Ltd, says that there is a lot of profit-booking taking place in this sector as the stocks have enjoyed high valuations, when the market was in its bullish phase.
“Till recently, the small cap stocks were the hardest hit, but now big players such as Reliance Energy and even Tata Power have come under heavy selling pressure,” said a sub-broker with a brokerage.
Bankex index
The Bankex index, which has been in the spotlight lately due to the Budget announcement on the loan waiver, has dipped 49 per cent as of today from its all-time high hit on January 12. Analysts attribute this dip to the farm loan waiver, which has created a lot of uncertainty in this sector.
“The margins of the PSU banks will be affected negatively due to the waiver of the farm loans. Another reason why the banking sector has tanked so much is because of their exposure to overseas markets. The internationals markets are also going through a lot of uncertainty, this will again affect the margins our banks,” said Mr Prashant Bhansali, Director, Mehta Equities Ltd.
A bright spot in the market, though, seems to come from the health care and FMCG sectors.
“These sectors have been underperforming even when the markets were going through the bull rally. Now, there seems to be some investor interest in these counters as the Budget announcements were positive for them.
The FMCG sector in particular, as the Budget was very consumption oriented. Thanks to the Budget, people will have more money at their disposal,” said Mr Bhansali. The pharma sector was down 17 per cent as of today from its high, which it hit on January 2. The FMCG sector fell by 16 per cent from its all-time high, which it reached on January 8.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
Realty index slumps 44% , Capital Goods, Power among worst performers
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