Since mid of August, I have started doing this as a study so the readers of this blog can learn along with me. I am also giving valuable list of stocks for quick profit. If anyone bought Kiriindus and Trent on the morning of 25th August as they showed up in 24th August list, they would have gotten a profit of 4-6% by evening.
I got inspired for this selection when I once noticed Indigo on daily chart and next day bought its CE at 9 and sold at 18 after few hours. Later traded TNPL, INFIBEAM, DIAMONDYD, JOCIL, BLISSGVS, ATULAUTO, during mid weeks of August and booked about 5% profit in a short time. Every stock may not rise the very next day. But I observed the potential for a rise in the next 10 days, on few stocks over a historical period of five years. Thus I decided to make such list everyday and trade familiar stocks or observe them for building trading watchlists to grow familiarity to trade later.
Today's short term selection list for short term study (2 weeks timeframe). Their performance will be reviewed after 8-Oct along with two weeks lists at one time.
Today's list got 3 stocks only.
company symbol today's close price % rise today avg volume
ADANIGREEN 617 4.9 1738825
ADVENZYMES 273.1 20 883720
PEARLPOLY 19.7 4.8 15740
Same table as a picture.
In the secondary list we got 6 stocks.
company symbol today's close price % rise today avg volume
ADANIGREEN 617 4.9 1738825
ADVENZYMES 273.1 20 883720
AHLWEST 286.1 2.2 1860
BEPL 64.5 2.5 1004939
PEARLPOLY 19.7 4.8 15740
WELSPUNIND 59.4 1.3 1703865
Same table as a picture.
Commentary:
As the sentiment hasn't changed decisively to the positive side, any negative news is having an impact. Before the sentiment change, negative news was shrugged off. Stocks went up despite posting bad quarterly results. This is what always happens in the market. Knowing the underlying sentiment is very useful for taking action and holding positions with confidence.
It is said that there are no resistances in bull markets and no supports in bear markets. The markets won't go in a straight line. But with pullbacks in bull markets and retracements (rallies) in bear markets. We should not be afraid of pullbacks in bull markets. Any recent support or moving average (MA) level will hold as support for the pullback and the market continues uptrend from there. Hence one can easily add more to one's position's and make a good gain with reduced average price. We cannot do the same once the sentiment has changed to negative. The more we average down, the bigger the loss becomes on subsequent falls.
We had Indo-China Border tensions recently over the weekend of August 30 that we saw big market crash on August 31. But if we remember similar thing happened in the mid of June as well. The markets indeed fell at that time but found support and continued in a trend within no time.
Just watching news alone is not sufficient. We need to also see how the market is reacting to the news. The markets have some thresholds like humans have. We can illustrate that with the concept of hysteresis that we have in electrical/electronic engineering.
Hysteresis is the dependence of the state of a system on its history. If we recently had sentiment change from positive to negative it won't easily change back to positive just by announcing something equal and opposite to the event that caused the sentiment change. It takes a lot more. The threshold for making the sentiment change is more. That is why what was once a good opportunity at one time in the market won't be the same at another time once tables have turned around.
A simple example for this the valuation of Yahoo!. In February 2008, Microsoft tried to acquire Yahoo for $45 billion. But Yahoo rejected it saying it is undervalued. Later in 2017, after 9 years, Verizon acquired Yahoo for $4.5 billion (for one tenth the value). What an irony!
I am citing this example to understand two points. One is the hysteresis part. That is for status quo to change, something big has to happen that should be more than what has lead to the current state in the first place. However as time passes, more and more events happen, their impact gets accumulate though market state doesn't change. But at one point it suddenly changes making everyone wonder what happened all of sudden. Many people affected by recency bias would have accustomed to market not changing for any news or event and shrug off an opportunity to detect a change and adapt when the rest of the market does slowly. For novice traders it will take time to follow. They have their own threshold that makes them lag so much when they eventually decide to change, the market turns around again and they will be trapped. This vicious cycle continues. Hence it is important to notice how the market reacts to news and whether things are turning around or not.
Another point is that the market needs to be treated as a financial market not as an asset or property. The valuations game is a dangerous game to play. Today a company gets valued at some level and another day it will be valued at a different level. These valuations will keep changing in cycles. If we initiated positions into a stock at some levels and averaged it in a down cycle, then we should get out with a profit, zero profit or minimum loss in the following reverse cycle (rally) before things change again. If we miss that we may not get another chance at such level. In some stocks though, we will get much higher value. In some we don't. Good stocks hardly fall and they reverse very soon after fall. They fall very late in a downtrend, that too reluctantly as if they didn't want to fall. So growth stocks will look like they made 'V' shape sometimes on a chart. Stocks of poor performing companies do opposite. They stay low most of the time. Keep falling very early. Rise very late into the bull market that they reverse and fall soon after. They show inverted V shape on their chart.
If we are doing SIP on a stock, if it is growth type that we didn't lower prices as we do SIP, then we should not be afraid of 'V' shape fall. Once 'V' shape is confirmed we should keep holding it. We should also not try to time the SIPs, as the time duration they spend at lower prices is less, we won't be able to anyway reduce the average price. This happened with my Divislab SIP from last year.
If we are doing SIP on a poor performing stock (not too bad, but prices don't gain despite having good fundamentals), then we should keep doing SIP. Our average price keeps reducing with time. But one time or other in a long time, they make a big bold move. We need to set some realistic price target observing the broader market sentiment and get out with profit before it is too late. One can sell half to book half the profit and let the other half stay if the stock were to continue to rise. This is the way I used to do SIPs historically since 2013. Morepenlab is the simplest example of it. Last year it was below 20 and kept falling. Despite falling to as low as 7.7 in March this year, it went up above 30 afterwards. An SIP with average of 16 for a year, would have easily given 90% profit! Now the price is no longer there. It is at 22 again. It could fall more in the months ahead.
These are the two topics I wanted to post today.
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