Inflating the Inflation, Deflating the Deflation

The Dow Jones Index which was close to 1000 in 1982, topped in 2007 at above 14000 i.e. it inflated 14 times in 28 years and in the current Depression (not yet official), has corrected about 50% and is currently trading close to 50% down from life time highs, Now the Brazilian Index Bovespa which was trading close to 5000 in 1994 topped out at 74000 in 2008 i.e. it inflated much faster than Dow Jones, but now it is currently trading near to 40000 after hitting 29000 in October i.e. it has not deflated as fast as Dow Jones, and still recently one Citigroup Analyst maintained a target of above 50,000 for Bovespa for year end and said that he would be buyer at 35000, All in all the analysts are fooling the world to believe that the inflated, ponzi scheme index called Bovespa is a buy, just like the S&P fooled the world by upgrading Bovespa as investment grade when it was trading at close to 72000, so that speculators could distribute there holdings.

Now let’s have a look at the Composition of Dow Jones and the Inflation, Deflation therein

Walmart which a penny stock and trading at 0.06 in 1972, had a lifetime high of close to 70 and almost giving returns like a ponzi scheme, was inflated more than 1000 times in just 36 years, the stock is currently trading close to 50 and is outperforming the Dow Jones Index.

Microsoft trading at 0.1 in 1986 hit a lifetime high of 60, It was a multibagger stock inflating more than 500 times in just 14 years

Similarly Mcdonald inflated from 0.3 in 1970’s to all time high of 60, inflating 200 times in just 36 years, HP inflated more than 500 times from 0.14 to above 77, Intel inflated more than 200 times from 0.35 to above 75 in just 14 years.

On the other hand Bank of America which inflated not more than 10 times from about 6.5 to 55 in 10 years is trading close to 4 after hitting 2.6 recently. Similar story could be said about Citigroup, JP Morgan, GM, GE, all this stocks are the ones who have beaten down hardly inspite of not inflating.

Now coming to my Indian Sensex, Leaving out the ponzi scheme Satyam which had inflated more than 500 times from 1994 to 2000, obviously on inflated earnings, and whose fraud came into light, The other Inflated Stocks Infosys, Reliance, Bharti Airtel, BHEL are still outperforming the Sensex.

Sorry Readers, it seems my expectations as posted in http://niftywhatcanhappen.blogspot.com/2009/02/can-sensex-trade-above-123k-by-mid.html are wrong, 2850 on the Nifty needed to be held for Nifty to move upto 3600 by Mid March, but since 2850 is broken and since Nifty has even broken 2820, Nifty seems to be heading towards 1800 by April end, well there are two options for the Nifty right now either it recovers and trades above 2850 which then could take it upto 3600 by mid March or it trades constantly below 2850 targeting 1800 by April end, the best trade is Buying Nifty March PE 2500 Options till its below 2850 some 3100 Nifty CE for March could be used as a hedge, ratio cud be for every 2 Nifty PE 2500 1 3100 CE cud be bought, While if it breaks above 2850 one 2500 PE could be sold at loss and one 3100 CE could be added, Also if 3600 is to be achieved its has to be done within next 20 – 25 days, including today, if not no chance, while if 1800 is to be achieved 2300 on the Nifty should come by March end, Strong positive or negative movement is likely, substantially low chances of range bound trade.

Now that since I am concluding by my Technical Analysis that Sensex should hit 12.3k and trade above that by Mid March which concludes Nifty Should be trading above 3600 by Mid March, so lets check if the Nifty Components have enough strength to Pull the Nifty above 3600

Reliance currently trading close to 1400, weightage in Nifty 12%, 1650 – 1690 looks at the max possible on the counter, which transpires into close to 20% gains from current position, so Reliance can add at the max 2.4% gains to the Nifty

ONGC currently trading at close to 710, weightage in Nifty 8.35%, anything above 780 – 800 looks far fetched on the counter, so ONGC can add about 1% to the Nifty

Bharti which is trading close to 660 at this moment has a weightage of close to 7% on the Nifty, 750 – 780 looks the best possible for the counter, which transpires in Bharti adding 1.2% to the Nifty

NTPC which is trading close to 183 right now, has a weightage of close to 8.5% on the Nifty, 190 which the counter touched 4-5 days earlier is a strong resistance, breaking which 220 looks possible, but 220 takes it into a bull market, while the whole Emerging Markets Space looks as it is in Great Depression, also NTPC has not closed at or nearby 112 after touching it in October 2008, anyhow for our purpose let say at 210 - 220 it will add 1.5% to the Nifty

BHEL currently trading close to 1415, commands a weightage of close to 3.75%, anything above 1600 looks overstretched on the counter, hence BHEL can add 0.5% to the Nifty

Infosys trading close to 1310, the counter can bounce max up to 1550, With a weightage of above 4%, the counter can add 0.6% to the Nifty

SBI trading close to 1180, an ask price of 1400 on the counter is possible, while very few chances of the counter touching 1600 look possible, with a weightage of above 4%, At 1400 the counter would add 0.6% to the Nifty

Uptil Now close to 50% of weightage is consumed and close to 8% could be added to the Nifty, Lets see how the counters commanding 2-3% Weightage look

HDFC with a weightage of 2.38% and currently trading close to 1540, looks overstretched above 1900, so it can add 0.5% to the Nifty

HDFC Bank with a weightage of 2.22% is trading currently at close to 950, 1100 or at the best 1200 is possible on the counter, which transpires in gains of 0.5%

TCS currently ruling at close to 515 command a weightage of close to 2.75%, can head up to 650 or 670, adding into 0.6% to the Nifty

Wipro trading close to 225 and commanding weightage 1.8% can head upto 300, transpiring into gains of 0.6% to the Nifty

Sail currently trading at 88 with a weightage 2% can have an ask price of at the best 115, which adds in 0.7% to the Nifty

RPL trading close to 88 with a weightage of 2.17% looks poised for 105 at the best, adding up 0.4% gains to the Nifty

Hence HDFC, HDFC Bank, Wipro, TCS, Sail, RPL which combined have 15% weightage can add upto 2.5% to the Nifty

HLL and ITC have combine wieghtage of close to 7.5% and have all time highs about 20 – 25% above from there Current Market Price, lets hope they trade 10-15% higher from here, transpiring into about 1% gains for the Nifty

So this 14 Scrips with 72 – 75% weightage in between them can add upto 12% gains for the Nifty, now that Nifty is trading close to 2950 and target is above 3600 transpires into 22-23% gains for the Nifty from current level, implying that the remaining 36 counters with combines weightage of 25% between them have to post close to 10% Gains for the Nifty, Again RCOM and DLF are making new lows each and every time Nifty Corrects and have weightage of about 3.5% between them, So all in all ICICI Bank, Relinfra, Tata Motors, Tata Steel, Suzlon, Hindalco, Idea, Sterlite which have beared the most brunt of the collapse would have to post big gains for the Nifty to trade above 3600.

Can Sensex Trade above 12.3k by Mid March

The Technical Analysis says that Sensex should be trading above 12.3k by Mid March (Well I am sorry I would not be detailing how the charts suggest Sensex to be trading at 12.3k by Mid March), but the Fundamental Picture would be cleared once the US Senate passes the Stimulus Bill and US Treasury Secretary comes out with a Bank Rescue Plan (Bad Bank Plan), Well the Senate would be voting on the Plan on Tuesday 10th February while Treasury Secretary might reveal the Plan the same day, If the Senate clears the Stimulus Bill and Treasury Secretary is able to outline the Bank Rescue Plan then if the Markets are going to follow Technicals then Dow might rally above 10k in a short frame of time, which will have an effect on Emerging Markets which will pull the Sensex above 12.3K by Mid March.

But looking at how the Dow Components are Trading one can see that GM, GE, Bank of America, Citibank, JP Morgan have erased there Market Capitalization Substantially, and hence have very little weightage in the Dow, and these are the scrips which should be posting the biggest gains, maybe doubling or tripling from the current levels, to take the Dow past 10k, because Exxon Mobil, Chevron, McDonald which are the Heavy weights in the Dow are trading quite close to Resistances and cant add to much gains to the Dow.

Now Coming to the Sensex One can see that Bharti Airtel, NTPC, ONGC, Reliance, Bhel, Infosys which combined together have a weightage of close to 50% in the Sensex have resistances such that 15-18% gains for them at the max look possible, while RCOM, DLF are at new lows each time Sensex falls and may not contribute big gains for the Sensex, that lives us with Icici Bank, Relinfra, Hindalco, Tata Motors, Tata Steel, Sterlite which have erased 70-90% of there maximum values and are having combined weightage of close to 7% to add in big gains to the Sensex so that it can trade past 12.3k.

Now the Counter View

Should the Stimulus Plan be rejected by the Senate, or the Bad Bank Plan does not augur to well with the Bulls and Dow breaks past its November 2008 Lows, then the Sensex might be staring at 6k

So How to trade the Market for Maximum Gains and if ever Losses then Minimum

Well One Can buy Nifty 3100 CE for February Current Price 29 Rs in 8-10 Lots