Wednesday, August 13, 2008

Nifty is Ready for Big Move

The Nifty has been inside a trading range for six days, and it is a really narrow range. The boundaries of the trading range are between 4500 and 4600. The Index cannot remain in such a narrow range for much longer. A 100 point range is almost negligible for the Index which often move 150 points in a day. Thus, we are waiting for an explosive move in the Index. As usual, the direction is unknown. Given the fact that the index has already seen an 800 point rally, there is a fair chance that the market may move to the downside. This will also offer a much needed correction after the sharp up move.
We are now at the top of a trading range that may have resistance around 4600 - 4700. If the uptrend is very strong, the Market will break through this resistance and move up. In case, momentum is normal or weak, we should expect a correction to the downside. Thus, buying is suggested only after a correction or after a decisive breakout with confirmation.

More Power to Gamble.
For reasons known only to itself, the NSE has decided to add 39 new stocks in the F&O segment, bringing the toal to 270+. India has the largest number of single stock futures for trading. Readers should ask themselves: why does no other country have these instruments in such numbers ? Answer: Because authorities (except in india) understand that single stock futures are like gambling, with no social or economic purpose.

Divergence between Short term outlook and Long term Trend
The price of everything discusses a book "‘When Markets Collide: investment strategies for the age of global economic change’ (McGraw-Hill, 2008) by Mohamed El-Erian, a veteran of the IMF, the Harvard Management Company, and most recently bond giant Pimco.
The short term trend is: : Oil is falling becasue of world wide receission, Gold has broken down from $850 support again due to lack of demand, the Dollar is getting stronger.
But, will you bet on these short term trends continuing ? NO. Oil is a pershing commodity - its price will go up in the long term. Same for Gold. As for the Dollar, the weakness in the currency will show sooner or later. Thuis there is a divergence between the short term trend and long term direction.
Next time when you hear some one on TV saying crude is down by 1 dollar or whatever, so share prices will go up, ask yourself, will crude fall in the long term ? If crude is likely to be in a long term bull market, then what about equities ? There are no clear answers to these questions, except by fund managers on TV who have a simple message: Please buy since that is the only way their funds will make money. (It is not about you!).
A Dozen thoughts on Trading Stress
Brett Steenbarger, Trading Coach offers these thoughts. here are a few:
* Everyone has a stop-loss level: For some, it's a price; for others, it's a pain threshold.
* The best traders have a passion for markets; the worst have a passion for trading.
* The best traders are not relaxed *and* they are not anxious. They are alert.
* Deep down, traders who don't prepare don't feel they deserve to win. We always gravitate toward our just desserts.
* The measure of a trader is how hard he or she works when markets are closed.


Shashank Jogi said...

Why the NSE keeps adding more and more stocks to the F&O list is quite unfathomable...quite so often the choice of stocks is also surprising.

I understand that you are no fan of stock derivatives. But gamblers, they can can very well gamble with Nifty Futures and Options...and for smaller gamblers, there is Mini Nifty to gamble with.

Note that it is easier to gamble with Nifty Futures than stock futures since the margin requirements for Nifty futures is invariably lower.

I dont think banning stock futures is a solution. Instead increase the lot size so that only larger investors can use them. Increase margin requirements significantly so that positions cannot be leveraged excessively.

Fund managers have to be bullish in public; they cannot come on TV and say that the markets are likely to go down so dont buy now! So they garb the message by saying 'invest for the longer run' or 'good time for someone with a 3 year perspective', etc. What they say should not surprise anyone.

Daily moves in prices of stocks or oil or anything else is mostly noise. But with a community, led by TV anchors and nodding 'experts', obsessed with wishing stocks move higher every day, limitlessly, one dollar fall in oil prices seems like great news.

If indeed oil is in a bull market (which I think it is), what will happen not just to equities, but also to our current account. Crude oil at $120/barrel means about $120 billion imports for India (12% of GDP). And since the retail prices are capped, demand keeps growing, i.e. the export bill will keep on growing.

Can the capital account counter such a large current account deficit? And then what happens to our currency? Foreigners are loath to investing in assets in a falling currency. So what happens to the Indian stock market valuations and what implications does it have for a neutral currency like gold?

Deepak a big fan ofn sudersha said...

I wish you and your family Happy Independence day & raksha bandhan and wish you will get every good thing in life .......

I thank You for the advise and today on 14 th august happened the same which u suggested yesterday....

I did the same mistake which i did earlier of buying few stocks on wednesday before waiting for few days according to your old post but stil I can average out when you suggest to buy .......

I have a question I just check the old prices of shares and realised that Few stocks like sesagoa ,bhel are giving 3000% return & stocks like reliance tata steel are giving return of 600 to 700 % in last 5-6 years ...

So just want to know whether trading can give you better return than this or not ,

And because I trust your advise more than anyone so just want to know the best pick for next few years for investing and for trading in safe condition ........