Analyzing November 2010 and February 2012 Peaks with recent high
Peaking points for Nifty Stocks
1) Out of 50 stocks in Nifty, 16 stocks have made recent highs. 25 stocks are yet to cross their 2007-08 peaks, while 9 stocks (most of them banks) made their peaks in November 2010.
2) The idea of putting this table is to further show quality of stocks leading November 2010 peak and February 2012 peak.
3) Both Peaks were followed by correction of 10%+ over following 2-3 months. Nifty is yet to conquer November 2010 peak, while Feb 2012 peak was conquered after period of 6 months (Sep 2012)
November 2010 Peak (Nifty peaks on 5th November @ 6312)
Prior to November peak, September 2010 had big move of 11.6%, hence month considered is September 2012.
Top 10 Gainers on Nifty (Sep 2010)
1) DLF, Tata Steel, Siemens, Hindalco (top 4 gainers) were massively down from 2007-08 peaks and were leaders for Nifty high. These stocks are yet to cross their 2007-08 peaks.
2) Strength in Banking stocks like SBIN, HDFC, HDFCB and Axis Bank was impressive because they cross their 2007-08 peak. However they subsequently fell sharply and are now below their 2010 peaks.
3) Only 2 stocks Ultratech and HUL were among the stocks which are part of current highs in Nifty.
Top 10 Gainers on Nifty (one week prior to Top)
February 2012 Peak (Nifty Peaks on 21st Feb 2012 @ 5607)
Nifty witness very sharp rise from December 2011 low 4544 to Feb 2012 High of 5607. However the quality of this very sharp rise was not very comforting, eventually resulting in Nifty fall to 4850 by 4th June 2012.
Top 10 Gainers on Nifty (Jan-Feb 2012)
1) Again, same story quality of move was suspect because same old stocks (which were much below 2007-08 peaks and below 2010 peak) were leading the rally.
2) None of the stocks from these gainers have made recent highs except Maruti and Tata Motors. Barring these 2, all sotcks are yet to cross 2010 highs.
Recent Nifty Move
Nifty has hit 2 year high of 5950 on 1 Jan 2013. Lets analyze what has led the current up move.
Top 10 Gainers on Nifty (Past 30 days)
1) Out of recent top gainers, only 3 stocks - Bajaj Auto, Tata Motors and BOB have surpassed their Feb 2012 peak, while Nifty is comfortably above Feb 2012 peak. SBI is very close to Feb 2012 peak, while rest of the recent gainers on Nifty are significantly below their Feb 2012 peak.
Nifty Top Gainers on 1-1-2013 (when it makes 2 year high)
The above table doesn't require much of comment. Only caveat is FII participation was low today.
Conclusion
1) Quality of stocks leading Nifty highs were suspect during previous peaks (November 2010 and February 2012) as they are now.
2) Both previous peaks were accompanied by frenzied move in small cap stocks as it is now.
3) Nifty Premium has reached extreme levels. Current month Premium close to 1%, while next month @ 1.6% (close to 100 Nifty points). Not sure how to read this but it is highest ever I have seen.
4) Typically, when market is very compressed and ranged between certain widely watched levels, first breach is invariably false. That move is normally to get people sucked in. Every pundit has been watching 5800-5950 level to take positional trade. Nifty has closed @5950 today. If the move is false then it should reverse very soon.
5) VIX has been very compressed since June 2012 and is now it 13.7 (very close to all time low close of 13.05 on 22 october 2012). Protection is extremely cheap.
6) Not sure about correlation but Nifty is within 5% of all time high, while rupee is within 3% of all time low.
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