Feeling Left Out? Two Opportunities to Make Money in This Market

Apurva Sheth

Nifty is trading above 10,000 levels for third day in a row. It has crossed above the five-figure mark after a month. Most of the stocks within the index have rallied smartly during the year.

If you haven't been in the market, perhaps you're feeling left out. Maybe you're wondering how can you bank on this rally.

Before you make a rash decision with your money, I want to ask you to go through the following insights I shared with my Peak Profit Alert subscribers on 12 August and subsequently with the Profit Hunter readers.

It's the Best Time to Buy IT Stocks

You know that markets go through a cycle of greed and fear. It's been that way for centuries. People were as greedy and fearful a hundred years back as they are now.

They tend to react in a similar fashion to greed and fear, which results in repetitive cycles. The reason for tops and bottoms may be different every time. But one commonality is that people were excessively greedy at the tops and excessively fearful at the bottoms.

History may not repeat but it rhymes.

I have spotted a rhythmic cycle of greed and fear that repeats every two years. I will explain this with the chart below.

2 Year Cycle in IT Sector
2 Year Cycle in IT Sector

This is a monthly chart of the NSE IT Index since inception. I have drawn vertical lines with a gap of two years or 24 months starting from February 2007, which was a major top in the index.

Each vertical line represents the beginning of a new phase for the index. The vertical line on February 2007 marks the end of 'the greed' phase and beginning of 'the fear' phase.

The index had rallied 109% between February 2005 to 2007. It dropped by 66% in the fear phase between February 2007 to 2009.

Here's a chart with the greed phase marked in green and fear phase marked in red.

Greed and Fear Phases in the IT Index
Greed and Fear Phases in the IT Index

The index enjoyed its best ever greed phase between February 2009 to 2011 with gains of 251%. The cycle turned in February 2011 and the index moved sideways till February 2013. It ended with a cut of 5%.

History rhymed once again as the index entered its greed phase in February 2013. It ended with gains of 90% by February 2015.

The next two years marked in red are the fear phase where the index lost 25% between February 2015 and 2017.

The challenging times for the sector are behind us. It has entered the greed phase in February 2017, and it could last till February 2019. If history is anything to go by, we can see the index moving up substantially from these levels.

The index has moved in a tight range over the last six months. It is trading close to its February 2017 level of 10,680 which means a bulk of its upmove is yet to come and this could be the best time to buy IT stocks.

Now IT sector is not the only place where there is a huge opportunity. Pharma sector is also on the cusp of a major reversal. I made my boldest prediction for the year 2017 in July in this piece - The Pharma Rally Starts Now. Here's a short note from it.

The Best Contrarian Opportunity

One lesson that I have learned over the years I've spent in trading and the investing industry is that being greedy when everyone else is fearful pays...always.

And right now it's time to be greedy in the pharma space. Why am I so bullish in the pharma sector? What has changed in the last fortnight that makes me so bullish?

First, volumes are not supporting the fall anymore. Many pharma stocks have been falling lower on heavy volumes over the last two years. Selling with heavy volumes suggests strength in the downtrend. It shows that supply exceeds demand, which means even lower prices.

A good number of stocks have dropped on lesser volumes over the last fortnight. This suggests selling pressure is drying up. Lack of fresh selling means all the weaker hands have exited the stock and the only direction left to go is up.

Second, sentiment in some stocks is so weak that even slightly positive news has the potential to lift stocks 5-6% in a day. This means all the bad news has already been factored into the price. So there aren't any negative shocks but only pleasant surprises.

Third, traders have made easy money on the short side in pharma stocks over the last few months. Positive surprises that lift the stocks could also extend prices further because of short covering rallies.

That's not all. I have been tracking the developments in the Healthcare index for my Peak Profit Alert subscribers regularly. Here's a chart of what I projected for the index on 29 July.

Road Ahead For Pharma Stocks (Projected)

Here's what happened till 12 August along with the views I shared with my subscribers on the following day.

The index has dipped almost as per our expectation. It has overshot slightly below the previous low. However, our view of a pullback is still intact.Now it seems the index could very well find support around the lower edge of this channel, which is placed close to the 12,000 mark...and it can bounce back from these levels.So now it seems that most of the pharma stocks could well be on the path of forming a bottom, at least from a short to medium term perspective. So I'm keeping a close watch on all the pharma stocks...

Road Ahead For Pharma Stocks (Actual)

The Healthcare index has moved as per expectations so far. Here's the latest chart.

Latest Chart of Healthcare Index

The index has bounced back as expected but that's not all. I expect the index to touch the upper edge of the falling channel over the medium term which means a 10% move from current levels.

So, both the IT and Pharma sector present us with excellent opportunity at this stage. But being bullish on these two sectors doesn't mean you can buy every stock in it. There are more than 150 stocks listed on the exchanges which are from these two industries.

You need to be selective and pick the best ones and balance your risks and rewards. If you can do that then that's great. If you can't then you need not worry. We can help.

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5 Responses to "Feeling Left Out? Two Opportunities to Make Money in This Market"
Nafe Singh Jangra
26 Sep, 2017
Can I know in which stock to invest? Like 
Soman Rakku
17 Sep, 2017
Can I know which equity share I have to buy.?Like (1)
Madan Bhatia
15 Sep, 2017
kindly advice me on which stocks from IT and Pharma should pick from current level.Like (2)
o n thapar
14 Sep, 2017
stock specific recommendation would be helpfulLike 
Sachin P. Kawthankar
13 Sep, 2017
Kind attn: Mr. Ankit Shah Kindly advice me on which stocks from IT and Pharma should pick from current levels. Regards Like (1)
We request your view! Post a comment on "Feeling Left Out? Two Opportunities to Make Money in This Market". Click here!