Top Short Ideas
Today we want to concentrate on top short ideas because of a few reasons. Nifty is testing key trendline supports of multi months at 5,400-5,450 levels. The bounce back was weaker than expected. Though we can’t still rule out a few weeks more of choppy and positive action, we would rather be cautious at key supports than otherwise. The old saying that more we test key supports, more we are likely to break through them could just be valid in the case of Nifty. And this is what seems to be happening. More time it takes markets to consolidate here, more likely they are going to push to 5000 before revisiting 5,900 – 6,000 again. Markets are entering seasonally negative period. The Yale Hirsh Nov to April periods is for buying while the rest time is for vacation and negativity. DOW new highs should not positively assist Sensex as it was not long back Sensex was outperforming Dow.
Above this our performance rankings based on price performance over a quarter and half yearly period suggest NTPC, GMR, Power Grid, Reliance Power, DLF, Punj Lloyd, Reliance COM and Suzlon as the worst performers and potentially the stocks where do things seem too negative the news is creating extremely depressed valuations and hence real accumulate opportunities for the next 6-12 month period.
Barring these 8 stocks which are a part of our ALPHA Hedge portfolio rest of the 111 components we track, 43 stocks and indices are above 70 percentile rankings. This means more than 5 times the number of long stock ideas is potentially ready to underperform compared to potential outperformers. Higher rankings mean that stocks are topping in performance and because performance is cyclical the best performers should underperform. Cyclically speaking the rankings for the top performers topped in Nov 2010 and has been negative since then.
One of the rules of investment after you make a system is to follow the system. The performance cycle system can be applied in three ways. First it suggests holding the 8 worst performers as long only ideas. Second approach is to reduce and or close the other 43 best ranking assets that cycles suggest should underperform. The third way is to hedge the long (8 stocks) with the short ideas (43 high ranked components).
This week we are listing the early economic sector stock ideas which include banks, financial services and auto major. These stocks can be shorted (speculate or hedge), reduced or closed.
SHRIRAM TRAN, PUNJAB NAT BK, KOTAK MAH BK, ADANI ENT, ICICI BANK, BK OF BARODA, HDFC BANK, CANARA BANK, SBI NEW, SYNDICATE BNK, I F C I, MPHASIS, TATA MOTORS, LIC H FINANCE, BAJAJ AUTO, YES BANK, TATA CONSULT, AXIS BANK, INFOSYS TECH, FEDERAL BANK, UNION BANK, MAH & MAH. Many of these stocks have already shown fall, but performance rankings are still high and suggest continued underperformance.
Today’s Alpha India report carries technical and Jiseki cases on two of the stocks from our list, Shriram Transport Finance and Bajaj Auto (slides 3 to 6).
Alpha is a daily strategy signal product that gives trading and investment signals. Alpha is a numeric Ranking product based on TIME fractals. The signals are illustrated through tracker and running portfolios. Alpha can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades. Alpha is a part of the time triads analytics developed by Orpheus Research.
Coverage India: CNX100 traded stocks and Indian Indices.
Michesan Anna-Maria, Head of India Research. Anna discovered her interest of markets immediately after completing her graduate studies in Economics. She followed it up with post graduate studies in corporate finance. A host of research work in behavioral finance, option strategies and quantifying market sentiment followed. Anna covers Indian equity and combines Elliott, Time Fractals and Time Analytics to deliver accuracy across time frames. To review some of her work, check out the annual India accuracy report 2009.