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.