Soon, India Will Offer Buy Opportunity – A Look at the India Fund (IFN)

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

I’m not posting the weekly report this week because I’ve been busy all weekend making final preparations for the launch of the new SelfInvestors.com and the market didn’t do much of anything last week.  The bears appear to be having trouble exerting any kind of control as each attempt at a sell off was met with a barrage of buying to keep the market virtually unchanged.  Soon, something will have to give.  The longer the bulls can keep bears in check, the greater the chance the market has of testing those old highs.  Although I’m still a bit biased on the bearish side and think that the market will test the previous  lows of the correction sooner rather than later.  In lieu of the weekly market report I thought I’d post a little analysis on the India closed funds, specifically the India Fund (IFN).

It’s been almost one year since the India stock market crash so I thought it would be a great time to take a look and see what the technical picture looks like.  Before I do though, it’s a good idea to take a look how the current stock price relates to the Net Asset Value (NAV).  With no mechanism in place to keep closed end funds from trading at significant discounts or premiums to their net asset value (NAV), these funds can get way overpriced as was the case with the India Fund (IFN) before the May crash.  Let’s have a look.  The following charts are provided by ETFConnect.com

You can see the India Fund (IFN) traded at a huge premium to its net asset value before crashing.  It was trading at the greatest premium in its history.  Just in the past few weeks the fund has finally come into line and is trading close to the net asset value (actually it’s begun trading at a slight discount).  The second image just provides another visual look at the discrepancy. 

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With closed end funds it’s important to know if it’s trading at a discount or premium to the underlying net asset value, but it’s also important to keep in mind that a closed end fund can trade at discounts or premiums for quite awhile.  In order to get a clearer picture of future price movement I refer to the charts and a bit of technical analysis. 

In the weekly chart of the India Fund (IFN) below, there are some key characteristics that can provide a decent prediction of where its going over the next several weeks.  For one, notice the possibility that the stock will go on to form a large double bottom base (which resembles a W).  Stocks or funds that stage severe corrections will often go on to form these patterns during their correction.  Knife catchers, bottom feeders and short covering lead to a weak, convictionless bounce off the bottom that ultimately loses steam.  In the second leg down (which is where we’re at now), the selling loses intensity indicating sellers are beginning to give way to buyers.  Notice the amount of sell volume was about twice as heavy during the initial crash then it is now during this second leg down?  What needs to happen is that we need to test the lows of the correction or possibly undercut those lows to shake out the last of the weak hands.  So a drop to around 35 or so.  Only then, will the last of the sellers be exhausted and a new round of enthusiastic buying can begin.  It’s not time to be buying India just yet, but in a few weeks it may offer a great opportunity to once again get into one of the fastest growing economies in the world.

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Comments on Soon, India Will Offer Buy Opportunity – A Look at the India Fund (IFN) »

April 3, 2008

Andy @ 9:57 pm

Great Article Tate. I was thinking of buying an India ETF, but I think I will wait. Thanks.

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