Saturday, May 31, 2008

DLF.....A Study In Head & Shoulders Pattern!!!

The above chart of DLF (listed just an year ago) I have chosen for my pattern study. It has a nice bearish Head & Shoulders Pattern (HSP) in both the weekly and daily chart. TA axiom “ Trade what you see and not what you think,” tells us it’s a clear case of short, if 580 (neckline) is broken with increased volume, and the stop loss should be placed a wee above the right shoulder for a target of 520/530. Simple..isn’t it?

Why I have chosen this as a study subject is because I want to see how will this set up play itself. As a student of TA I have learnt that HSP are reversal patterns. There are two kind of HSP the top and the bottom. And both when completed to their logical end, signal a reversal in the prevailing trend.

In the case of DLF (daily chart) this bearish HSP has formed at the bottom of the fall so logically we cant classify it as a reversal pattern. It can be termed as a continuation pattern and the fall from here would continue in the original direction.

Now taking the contrarian view at the setup. This HSP on the daily is forming as a base in relation to the previous down move, and most importantly at the very strong demand area (support). Right now all the oscillators are looking oversold. Before someone argues that oscillators can stay oversold for months together I just wish to add that I agree with them! But I feel though this is not an argument to say that oversold oscillators will negate this pattern but they surely will take the sting out of the move.

I am not trading it just tryin2figure it out. What to do, this probing mind…it just refuses to sit quiet. I would welcome all suggestions regarding this post or any observations, which I might have missed.

"In the middle of difficulty, lies opportunity."

Albert Einstein

Friday, May 30, 2008

Nifty Recap For The Day !!!

Another firm opening but we weren’t able to build on it. Nifty opened firm with no negative cues from global markets. But after an initial impulse we soon settled to more serene levels, this is the scenario played every Friday now days. If you have failed to take the morning trade then it’s always advisable to stay put till 12 p.m. and sit patiently till the inflation numbers are out. Today was no exception either. The only thing different was that the bitter pill (High Inflation) was swallowed down with some sweet honey (Good GDP Figures). No wonder we just didn’t know weather to scoff at the rising inflation or cheer for good GDP figures. As a result we just called it a day….an Inside Day. On the daily chart we were again spurned by the 50 DMA. Monday gears for interesting trading opportunity. We have a big engulfing red candle and now an Inside Bar. Things will get more volatile as both the bulls and bears will fight to save the low and the high of that red candle respectively. If already long make sure the first thing you do in the morning is punch in your tight Stop Loss same goes for the people who are short.

"The big shots are only the little shots who keep shooting."

Christopher Morle

Hmm… and in the markets I am just tryin2save myself from getting shot!!!

Thursday, May 29, 2008

Derivatives Blues! Nifty Recap for The Day !!!

I had mentioned in my blog yesterday that if we open gap up then fade the gap! But I surely didn’t mean that fade the market too! Nifty opened firm with positive vibes from the other entire world markets. But we decided to play our own game today. Volatility was at its prime yeah it normally is on derivatives expiry day. But what a sell off? Nothing has changed on the daily chart yet (yeah I know today is a bearish engulfing candle and ADX just moved a point!). But for me the support still holds good. The hourly on the right shows some good divergence. This is a very low risk set up one can go long here with a tight stop below 4800 (tight means real tight!). Though its too immature to point out now but take a look at the chart below; Yes it does indeed look like a bullish Wolfe Wave trade setting up. That is why it warrants a small trade with a tight stop.

"Courage is being scared to death - but saddling up anyway."

John Wayne

Yup it’s scary to tell someone to go long here but then what the heck saddle up…Hiaaa!!!

Wednesday, May 28, 2008

Alls Well When Dow's Well! Nifty Recap For The Day!

Hmm so we did have nice intraday trade today as mentioned in yesterday’s post courtesy Dow. Today was a bit volatile in the morning we were trying to ignore weak Asian cues and waiting for Europe to open. A very frustrating time till 1.30 p.m. Anyway the people who were patient were rewarded by a nice breakout. See the 5 minute chart (the black Circle) there was a breakout above the 20 DMA at the same time the price broke out of the triangle all this was confirmed by MACD giving a buy. In short a very rewarding setup. Now shift our focus towards the Dailies, we have just managed to close above the 50 DMA and again halted at our previous gap area. Tomorrow we might take a shot at that. Personally I wouldn’t like a gap up, if at all we gap up, and take out this resistance, and then we might have a very good “Fade The Gap” trade on our hands. Anyway tomorrow is derivative expiry so things will be very volatile.

"Mistakes are the usual bridge between inexperience and wisdom."

Phyllis Theroux

Hmm I have made plenty of them in my trading, maybe some day I will be wiser if not a good trader!

Tuesday, May 27, 2008

Tippy Tippy Tap What Color Do You Want? Red..Nifty Recap For The Day!

We are just as clueless as anyone else, and lost too looking for direction. Nifty opened firm (nothing exceptional to it) just because Asia was off their loosing streak and then as usual we bid our time till Europe opened. With a weak Europe opening we just drifted southwards. As mentioned yesterday that the 50 DMA and the GAP area will give major resistance for any up move; so was it. But today there were plenty of opportunities to go short in nifty. First it was the 2B rule (failure to hold on to previous high) I had mentioned earlier in my blog. Second chance was when we broke the mid morning low and finally the third chance came when we broke yesterday’s close. Similarly the logical targets for these shorts were; first the midmorning low, then yesterdays close and finally yesterdays low respectively. On the daily chart like I mentioned we were on a trend line support and again the resistance will be the 50 DMA and the Gap area. How ever if we get positive cues from Dow today, there might be a few good scalping and intraday opportunities tomorrow. Having said that I would also add a caveat we have the expiry on Thursday so we might witness some wild moves.

“As you think so shall you become!”

Bruce Lee

Hmm I think I will be good trader…I think…I think….

Monday, May 26, 2008

Nifty Recap Of The Day!!!

Today was just a time pass day. We opened gap down yet again and failed to fill the gap. Nifty opened inline with weak global markets. We were in a range today. Though the bears were strong for most part of the day but I guess neither side was willing to take any position aggressively as both Dow and FTSE are closed today on account of public holiday. On the dailies we have broken and closed below the 50 DMA. Incidentally we are also at an important trend line support. Tomorrow the bulls might try to reclaim the 50 DMA. The flip side is immediately above the 50 DMA is the gap area (4915-4945) which would act as strong resistance.

One more thing I have noticed is that our entire so called uptrend from mid march onwards had the ADX (marked in red rectangle) going down to a trend less state. It means that this uptrend had no real strength. Who knows ADX will start showing strength when we begin to fall??? Yeah Fall! We have run out of good news now. The earnings season is over and Inflation is not making thing easier for us. Speaking of Inflation here is an excerpt from today’s Economist” India's inflation rate may be revised to 10 per cent from the latest estimate of 7.82 per cent as data for prices of different commodities is updated.” Guess what this might be a blessing in disguise? Maybe we just run out bad news also!

"You must do the things you think you cannot do."

Eleanor Roosevelt

Yeah Yeah! that’s what I am tryin2do I am tryin2trade!

Friday, May 23, 2008

VIX.....A Contrarian Indicator!!!

The Market Volatility Index (VIX) is a contrarian indicator. It measures the

Sentiment of options traders by gauging the level of volatility in the prices of

0ptions traded on stocks in the S&P Index. When the VIX is trending up, that’s

usually a bearish sign, and when it’s trending down, that’s a bullish sign. In

addition, relatively high readings in the VIX should be viewed as too much

pessimism and likewise a bullish sign. That’s because such high readings

usually indicate an intense panic in the markets and typically, after a wave

of panic selling, the market recovers. In contrast, relatively low readings

should be viewed as too much optimism and as a bearish sign. That is

because complacent investors are likely to be whopped upside the head by

a wave of selling triggered by the smart money, which senses that there isn’t

much cash left on the sidelines to sustain the rally. The above chart contrasts

the movements of the weekly VIX (RED LINE) versus that of the weekly

S&P NIFTY (GREEN LINE). Note how the broad market moves in the

opposite direction of the VIX-therefore; it’s a contrarian indicator.

Thursday, May 22, 2008

Nifty Recap For The Day!!!

Yesterday’s effort of closing on the upper end of intraday range bore no fruit. We opened weak inline with global weakness and meandered hopelessly looking for cues. On the dailies we closed below the 20 DMA, which now should give minor resistance. It looks like the H&S pattern is completing but there is one caveat to it; patterns that are easily recognized by the masses tend to fail or would test your patience (you see the pros just wont let you have any free lunch!). Nifty is just frustrating both the bulls and the bears and that is because none seem to have any conviction. This is the classic case of practicing the golden rule when in doubt stay out! (If only it was this easy I myself have been victim of not following this rule :) ).

Speaking of H&S; below is an interesting chart of SBIN (both the weekly as well as daily). Notice how discernable the H&S pattern is in both the time frames. It has formed just above the very strong demand area. It would be interesting to see how this pattern unfolds. I feel we might have nice pull back trade from this demand level and get a chance to short at a little higher level.

"Some people dream of success while others wake up and work hard at it."

Origin Unknown

Wednesday, May 21, 2008

Nifty Recap For The Day!!!

We opened in line with the global weakness. cRUDE shocks again I say!!! Nevertheless we made a smart recovery in the mid day trades and managed to close at the upper end of the intra day range. A very nice long trade was given by the nifty with the MA providing good support on the pullbacks but I doubt if many people took it, because at times volatility was scary. On the dailies we seem to be trapped between the two important moving averages the 200 and the 50 (reminds me of ajit joke.. like being put in a liquid oxygen tank…liquid(200 DMA) wont let u live and oxygen(50 DMA) wont let you die :)…poor joke???I know it is! ). Let’s see which MA we break first. Also point to be noted is that ADX is really quiet, is it a lull before a storm? We are in a precarious situation with concerns of global inflation and our own elections it’s a double whammy for our markets.

Speaking of Inflation I would like to share something from Peter Navarros book;

The problem, however, with tracking inflationary pressures is that there are

two main kinds—“demand-pull” and “cost-push”—that can have very different

effects on the market.

Demand-pull inflation comes with economic booms and “too much money chasing

too few goods.” It is very bullish. It is also readily curable using contractionary

fiscal or monetary policies.

Not so with cost-push inflation, which is the result of “supply shocks” such as oil

price hikes or drought-induced food price spikes. This is a much more bearish

inflation because supply shocks can create simultaneous inflation and recession—

the dreaded “stagflation.”

"Effort only fully releases its reward after a person refuses to quit."

Napolean Hill

Tuesday, May 20, 2008

Little Trend Line Trick!!!

I am back from my vacations. On the eve of my departure my friend and fellow trader Shree Mamgain had sent me this setup along with his chart. I thought I will share it with friends on the blog. Hope it proves to be a useful trading tool!!!

This little trend line trick comes from the book, Trader Vic - Methods of a Wall Street Master. This gem comes from Chapter 7 - Where Fortunes Are Made: Identifying a Change of Trend.

"...this one observation, considered alone, has the greatest potential for catching the exact highs or lows; it carries more weight in terms of probability that any single one of the other three criteria for a change of trend."

The 2B Rule

"In an uptrend, if a higher high is made but fails to carry through, and then prices drop below the previous high, then the trend is apt to reverse."

Here is an example chart:

"...the locals as well as the brokers who trade on their own account have a vested interest in driving prices slightly above or below these "resistance" or "support" points to force execution of the stop loss orders. This is called "taking out the stops." After the stops are executed, the market will readjust. This is exactly what happens in the case of most 2B's and is typical action in all markets."

Saturday, May 10, 2008

I Am Gonee For A Week!!!!

It's Holiday Time With The Family!!! I wont be Posting in the blog till 2oth. For the friends and well wishers "Have A Great Trading Week Ahead". I am hoping to come back more refreshed with a more clearer view!!!

Friday, May 9, 2008

cRUDE Shocks? Nifty Recap Of The Day!!!

Nifty continued with the overnight weakness and with no global direction. We opened gap down and proceeded to close the gap. The first impulse trade and then a convincing short was signaled when we broke the days low. There was no looking back after that. Yesterday only I had written that we need some strong triggers to sustain the up move. Anyways speaking of the daily chart we are still in the box. We have a major support at 495o and 4920 approx (50 DMA). Any breach of these levels and a close beneath them would signal the end of this rally. The world seems to reeling under the Crude Shock. There is a positive side to it also. I would look at where all these Petro Dollars are going to be invested. The money earned by oil producing nations has to find its way into the attractive markets. In Asia we surely look like the best bet! Anyway in the morning I read a very nice article on why we should take a holiday (incidentally I also got the same suggestion from a much esteemed Technical Analyst in my yahoo messenger). If you are interested then you can read today’s notes on State Of The Market. As for me I am taking this advice a wee bit seriously. I have decided to take a break from the markets and head for Goa with my family. I won’t be posting on the blog for a week!

"You will find the key to success under the alarm clock."

Benjamin Franklin

Thursday, May 8, 2008

When Trading 5 Minutes It Pays To Listen to 60 Minutes!!!

Take a look at the 60 minutes chart of Nifty. What do you see? Patterns and clear Divergences? Right! It’s a mistake I often make when I day trade some times. I just don’t very often (rather I am lazy) look at the higher timeframe than the timeframe (5 minutes for intra trades and dailies for swings) I trade. As a result I have lost many a trading opportunities or rather I have closed my winning positions for a token profit or some times even at a loss. If only I had enough sense to look back at the higher time frame I would have made good trades. No point in crying over spilled milk. I know it’s always easy to see the middle of the chart and do your trades but what matters most is the hard right edge! Why I keep annotating my charts? Because it is helping me, in deciphering patterns and training myself to identify them in the future, as and when they occur. Speaking of Patterns lets recap what all we see in this chart;

  • On the left we had clear Double Tops confirmed by negative divergence in the MACD. The Logical target was achieved in fact we exceeded the target.
  • In the middle right from March to mid April we saw two very bullish patterns; an inverse Heads&Shoulders and encompassing it was a large symmetrical triangle. In this case also the logical targets were met.
  • Now coming to the hard right edge we seem to have made a flag. And if you look at the chart in its entirety we can see a large rounding bottom, probably we might make a cup and handle or a huge inverse Heads&Shoulders with two tiny shoulders and a huge head but all that confirms if we break 5350.

I know the last point about the entirety is a bit too much of optimism. But as they say Technical Analysis is more about probabilities than certainties and the least we can do is get our probable scenarios right. For me a lesson learnt that it pays to look into the higher time frames than what I trade, be it 5 minutes or dailies. After looking at these kinds of charts sometimes I wonder do we needlessly make our Technical Analysis difficult. Or is it just that the hindsight is 20/20?

Nifty Recap For The Day!!!

Another frustrating day if you had planned to trade Nifty. It looks like we have run out of good triggers. The earnings season over…the monetary policies out now the markets are looking for some cues to which way it should move. Speaking of Nifty the global cues weren’t helpful and we continued to meander sideways. If you look at the 5 minutes chart you would notice we just drifted in a range and there was nothing much to trade. It looked like we neither wanted to break on the upside nor the downside. As far as the daily charts is concerned we are back in the box (between the 200 and 50 DMA)…till we break out on the either side it will continue to frustrate. Right Now we are at a stage where both the Bulls and the Bears seem to have the following in their mind;

"Being defeated is often a temporary condition. Giving up is what makes it permanent."

Hmm…Neither side wants to give up…God save the pigs that are getting slaughtered in between!!!

Wednesday, May 7, 2008

Nifty Recap For The Day!

Hmmm first it was the Food, then Oil, what next? Water! I guess INDIA has arrived and We are here to stay! That’s what I call subtly recognizing India as the next superpower! I am loving it, I don’t know about you. Anyway coming to today’s Nifty action. Very volatile but did give few good trades to penny pushers. To trade in Nifty in these kinds of days you got to be very agile especially if you are a scalper. I am afraid I am not that nimble but then I have my cake somewhere else (made a few bucks in SBI and ONGC). I did mention support for Nifty in my last post and I also did say 5100 looks hunky dory. See the low of the day 5101.25. On the daily chart we have made a small hammer. Also as said earlier the 200 DMA is a place where maximum resilience will be shown by both the Bulls and Bears and that’s what happened today nobody wants to relinquish control that easily. Nothing major has changed over night so we maintain the same status quo. There are many like me who are perennially confused on what stocks to choose and what to dump for them (me included!) here are the Three Golden Rules;

  • Buy strong stocks in strong sectors in an upward-trending market.
  • Short weak stocks in weak sectors in a downward-trending market.
  • Stay out of the market and in cash when there is no definable trend.

Yeah I know it’s easier said than done, well I am tryin so can you! Ok just to make myself feel a little worked up I end up with a quote from Bruce Lee…

"To hell with circumstances; I create opportunities."

Tuesday, May 6, 2008

Nifty Recap For the Day!!!

We opened in line with the overnight weakness. With earnings season almost over so we don’t have much to look forward. It’s funny though, now days during the first half of the day, Nifty trades in a tight range waiting for Europe to open and take cues. Anyway today we closed below the 200 DMA. Nothing major to worry, this is an important level and where both Bulls and Bears will show maximum resilience to defend or break it. In technical terms if an important Moving Average is broken then the one below or above becomes the logical support or resistance or if you fancy you can call it a TARGET. In this case we have the 20&50 DMA (below) at almost the same place so the logical support is 4950/5000 (by the way before that 5100 also looks hunky dory!). Till this holds we assume the trend in question is up and this is just a technical pullback. Once again I reiterate with earnings over we really need a strong trigger to keep going. The only threat comes from the Government! Yeah! You read right. In the year of election the Government is desperate to impress and the Market abhors smart alecks!

"Everyone thinks of changing the world, but no one thinks of changing himself."

Leo Tolstoy

Monday, May 5, 2008

Sell & Sell Short By Dr. Alexander Elder!!!

I have always considered Dr Alexerder Elder as a writer par excellence; he gives a touch of humanness to the cold hard Technical Analysis. Maybe it’s because of his background as a trained psychiatrist. If his book Trading For A Living dealt with basic structure of technical analysis then his other book Come Into My Trading Room provided the body to that structure. Dr Alexander Elder summed it as “to be a successful trader you have to develop iron discipline (mind), acquire an edge over the markets (method), & control risk in your trading account (money).

His another book Entries and Exits: Visits To 16 Trading Rooms, though not a Technical Analysis book in its strict sense, was a mirror into, how his methods have been practically employed by ordinary traders to further their trading careers.

Coming to his latest book Sell & Sell Short. It’s often said that the entry is the easiest thing, but it’s the exit that matters the most, because it is the exit that defines the net outcome of the trade whether it results in profit or loss. We give so much of importance to entry and let our exits be governed by our emotions. There are plenty of books which teach you to have that perfect entry but there are very few which stress how to have that perfect exit. Sell and Sell Short is an attempt to bridge that gap and teach a trader how to sell profitably. The book is divided into two parts;

  • Sell: By sell he means booking profits on your existing trade or getting out with a minimal loss. Here Dr .Alexander Elder outline various ways where one can exit the trades.

1 Selling at the target: Dr. Alexander Elder suggest that selling should be done at the Moving Averages. Selling at Envelopes or Channels or selling at the Resistance.

2 Selling On the Stop: In this chapter Dr. Alexander Elder outlines various techniques such as Iron Triangle, Market or Limit Orders. He also explains the usage of Hard and Soft Stops. There is new concept he has introduced in his book called Volatility-Drop Trailing Stops. This is a very good concept if one is sure of the direction of the trend and wants to ride it without compromising on the locked profit.

3 Selling “Engine Noise”: In this chapter Dr. Alexander teaches to take profits or exit trades in the event of weakening momentum. He outlines ways for discretionary exit from long term trade. How to sell before earnings report and how to sell using his favorite indicator; The New High- New Low Index.

  • Sell Short: This part deals with short selling. I wonder weather this book was timed for release when we already fear the onset of a Bear Market. Anyway for newbie’s like me who are the products of the current Bull Market, and haven’t yet encountered the real Bear Market, this section is a real delight. This section outlines ways to short at tops and short at down trends or how to short fundamentals.

Though this has been the main crux of this book, but time and time again through out the book Dr Alexander Elder stresses the need for following strict money management rules and maintaining of good records. In fact he often stresses that show him a person with good records and he will show you a successful trader.

Ok now if you are wondering how I am qualified to review this book? Well I am one of the first few to lay my hands on this book. Yes sir I have the hard copy personally autographed by the Master himself. So if you are a classic Elder fan get your copy and read.

Guru-itis! Stay Away From It!!!

I wonder if many have read a book called “Street Smarts” by Laurence Connors and Linda Raschke (it’s a good book and anyways I am fan of Linda!). I just couldn’t resist myself to put a very nice piece Connors had written about GURUS! I found this very interesting. Hopefully you would also find it as an eye opener and save yourself form the disease called “Guru-itis”. Here are the excerpts from the book read on;

“I learned that very lesson in 1987. I became very sick with a mental illness known as

“Guru-itis." This affliction occurs when a normal, somewhat intelligent individual

loses all sense of his abilities and becomes subservient to someone he believes is of

greater power. In my case, I became a willing follower of a market guru who had

accurately predicted the bull market move of 1984-1987. In late August 1987, with

the Dow at all-time highs (2700 range), my guru told his disciples that a

grand-supercycle move would bring the Dow up another 700-800 points in a short


Up until that point in my life, I had been fairly conservative in my personal

finances and was lucky enough to have accumulated a comfortable amount of

money. After my guru made his pronouncement via a newsletter, I immediately took

a piece of paper and began plotting my course to riches. I divided 800 points (the

expected grand-supercycle move) by 8 (the approximate amount of Dow points

needed to move the OEX index up or down one point) and came up with the number

100. I then quickly multiplied 100 times $100 (the amount of money one OEX

option increases in value on a per point move) and came up with $10,000.

Then I really became excited. If my guru's predictions came true, I would

make $10,000 for every OEX contract I owned. The next day I did what every good

disciple should do. I began aggressively buying OEX calls. September calls,

October calls, multiple strike price calls-you name it, I bought it. Within a few days,

nearly 30 percent of my net worth was in these calls. I remember being so excited at

the amount of money I was going to make that I could not sleep at night.

Coincidentally, at that time, my wife (who was five months pregnant with our

first child) and I had scheduled a two-week vacation on the island of Maui. The

morning we boarded the plane the market was up about 15 points, just as my guru

said it would be. The six-hour flight was the longest flight in my life. I couldn't wait

to land to find out how many thousands of dollars (tens or hundreds?) I had made

that day. When we arrived at our hotel, I called my secretary to get the good news.

The conversation went something like this:

ME: Carmel, was the market up 50 points today or did it go up 100?

CARMEL: (silence)

ME: Come on, Carmel, give me the good news.

CARMEL: Down 52 for the day, Larry.

ME: Sure, Carmel. No really ... how much did it go up?

CARMEL: Larry, I'm not kidding.

ME: Quote me the prices on my options, Carmel.

CARMEL: (She quotes the prices of the options).

ME: Sh..t!

I mumbled good-bye to my secretary and immediately called my guru's hotline,

"Not to worry'' said the main man. 'The grand-supercycle high predicted for the near

future is still intact." Even though I had taken a beating for the day, I began my

vacation assured that riches were just around the corner.

The next day, my wife and I spent the morning looking at condos in Maui. I

figured every 28-year-old, soon-to-be-millionaire trader should own at least one. By

the time we had finished our house hunting expedition, the markets were closed for

the day, and I called my secretary again for the quotes.

CARMEL: I have good news and bad news.

ME: Give me the bad news.

CARMEL: The market lost another nine points today.

ME: What the hell is the good news?

CARMEL: It was down more than 35 points earlier.

This time, I didn't mumble anything. I immediately hung up the phone and

called the guru's hotline. Once again, he assured us that the grand supercycle was

still intact. (I believe psychiatrists refer to this as "denial.") To make a long story

short, this scenario took place day after day. What should have been a very relaxing

vacation turned into 14 days of misery. (We all know what happened to the market

shortly thereafter.)

The message from us is this: do not let your decisions be swayed by the

predictions of gurus and experts. By following your own counsel and only trading

the strategies that you are comfortable with will you be able to avoid situations like

the above story and maximize your abilities as a trader.”

Sunday, May 4, 2008

How to make money in bear market?

I received the following article today in my mail. It’s a nicely written piece, so I thought let me share it with all of you.

Everyone loves bull markets. In a bull market, every stock will give us good returns. But bear markets test one's real ability, company's fundamentals and investor's patience levels. But Bear markets also provide wonderful investment opportunities if we can able to spot investment chances early. We can make good money in very short term period.

2 types of investment strategies in bear market:

1. Accumulate more on every fall and invest for long term to reap full benefits. Even good stocks will be available at cheap prices in bear market due to bad sentiment.

2. Ultra
short term opportunities. You should always be on alert to utilise these chances. If you enter late, losses will be more as it happened in case of Orchid chemicals investors who entered into that stock at above 300 levels.

Alert: Operators will try to fool investors by artificially rising stock prices by spreading rumours. Be careful with stocks like Ispat, RNRL, IFCI and Essar Oil. If don't have enough knowledge on Stock Markets, stay away from these things. If you are a long term investor, don't buy major stocks at current levels.

Bear markets- best money making opportunities:

Over reaction: When L&T announced minor losses in Forex derivatives, everyone sold it despite strong fundamentals of the comapny. We should see for such opportunities to enter into those stocks.

Sudden options: Orchid chemicals suddenly lost 50% value despite no change in fundamentals. That was due to Bear sterns sell off. We should be always on alert for such chances.

Over enthusiasm: Markets over reacted to open offer and acquisition rumours and took stock price to unreasonable 350 levels. Even if Ranbaxy take over Orchids, 250-280 is reasonable price. We will look for short selling opportunities in such instances.

Buyback offers: In a bear markets, prices generally do not justify its intrinsic value. So companies try to buy back shares at higher prices. Just see what happened in Sasken Communications. Look for good buy back offers.

Never chase operators: If a stock is rising without any reason, simply stay away from such stocks. It is due to operators activities. Never invest in any stock basing on rumours.

Crucial breaks: Some decisions will change company fundamentals to much attractive levels. In these instances, stock price will rise for prolonged period as it happened in Bombay Dyeing.

7. Rallies in bear market generally will not last for prolonged periods. So, make money in
short term and exit that stock.

Short term opportunities will be available in stocks that lost more than 50% in a short period despite good growth. We should identify them early before markets recognise them as it happened in ICSA India and Gujarat NRE Coke.

Investors can't sit idle in bear markets as investors over react to bad news and stocks will lose all the gains in 1-2 days. These ultra
short term opportunities are only for experienced investors who can spend enough time on stock market research and at trading terminal. More companies are planning to buy back shares means we are going to get investment chances to make quick money.

Saturday, May 3, 2008

Just A Curious Look At Monthly Chart Of Nifty!!!

In my visits to a forum which I frequent often there are a wide variety of people sharing their views about the market. I like the place because in certain respects it resembles the CROWD, we often talk in trading parlance (yes I am a part of that crowd..but tryin2think differently!). There we had really fancy downside targets but after crossing 5k we have now fancy upside targets. You see it is with the crowd that their views change with dramatic impunity. Anyway this led me to a question;

· Is this a technical correction in a primary bull market?

· Or is this an onset of a new Bear Market?

Well I am not an expert and as a learner I know that both are two different situations and have to be dealt differently. If this is indeed a technical correction then we should be aspiring to reclaim the previous high and go beyond if we can. And if this is indeed an onset of a Bear Market then it would be foolishness to wish it away in mere three months as most of the people do when they see a 500 point rise. Let’s take a look at the monthly chart of Nifty (tried to make the chart as simple as possible). We can see that Nifty is still holding its multi year trend line (blue line), and adhering to the Dow Tenet of rising peaks and rising troughs. In such a scenario we can have two things;

· Nifty doesn’t break the level B2, and drifts within the rising trend line (and the channel), then we can safely assume the Bull Market is intact and a year end target of 6500 or more.

· Nifty does break the level B2 and signals trend reversal by breaking the series of rising troughs then we need to be cautious and calculate our targets to the downside and treat it as a new Bear Market.

These are my views and I welcome any corrections or suggestions to the above analysis.

I will sum this post with a Buddhist Proverb "When the student is ready, the teacher will appear."

PS: I am ready! Just waiting for the teacher!!! R U The One?

Friday, May 2, 2008

Confused And Looking For Answers!!!

I am a bit confused so please do help me with your views. Today I read that Automobile companies reported excellent figures for the month of April 2008 vis a vis April 2007. What’s more intriguing is that these increased numbers are attributed to good sales in B segment cars ( the altos, zens, santros, getz and i10 and so forth). Now who would buy these cars? Middle Class Families? Assuming it is indeed the Middle Class group then why would they buy;

  • Maybe it is their first time purchase…A First Car!
  • Or it’s an additional car to their already bigger car!

Ok now why I am boring you with all this? My predicament lies in the fact that with Inflation (yeah man today’s figure says we are at a 3 year high!) and rising food prices (every TV channel is showing how our poor women are finding it difficult to put two straight meals on the table!), Interest Rates (car loans aint cheaper!) least but not the last…CRUDE! We all know Crude is no cheaper than what it was last April. So in spite of this people still feel that they are better off buying a new car? Are they really affected by Inflation? Have they made provisions in their household budget by making additional allocations or by cutting on “Oil For Food” for “Oil For Car”. All this foxes me! Is Inflation a fashionable word to strike intelligent conversation? Or is it just another tool the politicos play with? Or does it affect only the selected few… The Unfortunate Ones!

May be Oscar Wilde sums its better by saying;

"Anyone who lives within their means suffers from a lack of imagination."

Yawn! Just Another Nifty Recap Of The Day!

Yeah! Yeah! Bernake did a Reddy( and we gave a thumps up with a gap up). Let’s take a look at today’s Nifty action…Yawn! Yups another day, where individual stock trading, would have been more fruitful than trading Nifty. We gapped up after all we also needed to celebrate Fed action considering that we were closed on Thursday. Then rest of the day we spent in protecting the gap and reclaiming the highs for the day. Other than that there was nothing to do. Well one should enjoy these kind of days with some additional reading or listening to music or better still picking up that phone and catching up with friends. On the daily chart nothing much has changed we still moving towards the 5370 target albeit in a flag formation. As of now no alarm bells the supports on the down side are the 200 DMA and the 5k mark. Personally I feel if one is already in profit in their portfolio then its time to take out some profits.

"Do not confuse motion and progress. A rocking horse keeps moving but does not make any progress."

Alfred Montpert