Why I'm Cutting ICICI Bank Exposure

When last we looked at the Indian banks,I was buying these gosh awful charts that had completely broken down, hoping we'd have some "double bottoms" in place. [Jun 3: Starting to Build up Indian Banks]

I normally do not buy charts like this; I like to buy strength most times, not weakness. But I am hoping a double bottom is being formed with mid March lows in both these names. Further, in the "No Indian Bank Left Behind" program, I am almost obliged to throw these guys a bone. I've not treated these 2 stocks as buy and holds, but more of trading vehicles and the layer in/out approach has actually worked wonders with these two since we have nice profits.

So far this trade has worked out for one of the 2 names; ICICI Bank (IBN) which I had added in the low $35s - it then proceeded to fall another 2 days, down to $33s - I added some more (smaller purchases). Now in 2 weeks we've seen a nice rebound to the low $38s, so I am going to cut back this position with about a 9% trading gain, and see how it reacts from here. This is a technical call, although it might be early - using exponential moving averages, resistance is right here near $39. Using simple moving averages, the resistance is at $41. So we might be early, but a profit is a profit. I took IBN down to a 0.2% "holding" position, awaiting further clues of near term movement.

As always when we cut back a position as it approaches a resistance, it could either (a) push right through or (b) fall back. We are encouraged when things push through because that signifies strength, even though it means we gave up some profit. There is no shame in just buying the position back, as this sort of breakout would signify some strength ahead.

I'm funneling some of this money into HDFC Bank (HDB) to keep my "India" exposure somewhat intact - this name has not really bounced much and sits here in the mid $80s (no clear resistance til about $100). However, I continue to have some fundamental worries about global inflation and its impact on economies worldwide - so I am a lot more cautious on India (and the greater Asian story) at this time because unlike our central bank, the rest of the world is trying to fight inflation and that means higher rates - which usually does not bode well for stocks. Especially those of the financial sort.

I do realize the party continues on in the commodity stocks (it just appears the entire hedge fund community is now a momo trader chasing community), but as I've been repeating at some point, this turns from a cute story to a major drag on the global economy. I believe we're here - despite the propaganda coming out of Washington that inflation is nearly nowhere to be found - hell, women's shoes and iPods are available for a song!

If things play out in a traditional economic sense - we should be seeing some serious demand destruction in the 2nd half of 2008 globally (the quicker Asian subsidies go, the quicker it will happen) - which will finally lead to lower commodity prices. When that train does turn, I suspect it will be vicious. But for now, we'll keep riding...

Disclosure: Long both names in fund; long neither in personal account

Comments

[techy]

so you think it is ok to take these risks with OPM but not your own personal money?