Wednesday, September 17, 2008

The Morning Review: Trading Ranges Confuse

As the Nifty fell to 3930 on Tuesday (yesterday) there was a sense of panic. Yet, the Index recovered all its losses to close higher than Monday. As I write this at 7:58 AM, Asia is higher, with the Dow having closed 140 + points up.
Now, a breakdown from the trading range is a signal that the Market has decided to move to the downside. Within this action, there will be many days of counter trend moves, as yesterday, and maybe today. Not just this, it is always possible that the breakdown was false, with a new up move starting again.
Then, what should traders do ? It is possible that a technical move may go wrong (example: a breakdown from the trading range may have been false). Yet, the safest method of trading is to follow the chart signals. Even after accounting for the wrong trades, the net result is a profit. Ask yourself: what is the other method of taking trading decisions ?

It is the nature of the trading range to ignite optimism when the prices are at the top of the range (maybe they will break out!) and pessimism when they are at the support levels (maybe they will break down). Once a move ouf of the range takes place, it is wise to accept it unless proved otherwise.

5 comments:

Ilango said...

Hi..Mr.Sukhani,

After breaking the 4250 lower range of earlier "Trading range", Nifty quickly hit the 3920 - 3955 levels on two days and bounced to close near 4100. To me, I consider the new trading range as 3950 to 4200/ 4250 with the Pivot at 4075.

I will sell the 4000 Call or 4100 call when Nifty reaches 4200 as bearishness for the settlemeent is still there.

Shashank Jogi said...

AIG has been bailed out by the US Treasury. Analysts were of the view that if AIG had gone bankrupt, there would have been a catastrophy in financial markets worldover. That has been averted for now. But will it stop the bleeding in assets markets in general and stock markets in particular?

I dont want to be pessimistic. Big money is made when prices go up rather than when they go down (though you can still make a lot of money when prices go down). But I cant imagine a rosy scenario for a long period to come.

Had AIG failed, there might have been armegeddon in the financial markets. But the world would not have come to an end. All the excesses (and perhaps some more)would have been purged out very quickly just as a jungle fire cleans out plants and trees in a jungle, and new life would have begun. The pain (for those affected) would have been intense but short lived.

But bailing out AIG and other firms earlier does not alter the fundamental picture that the US is in a recession and using logical constructs (which fail sometimes, no doubt) the recession is likely to be severe. Bad things will keep happening in the economy regardless of whether AIG gets bailed out or not.

The businesses of AIG, Fannie, Freddie, etc are now going to be wound down over the next couple of years. Add to this the massive deleveraging already happening and continuing going forward. Will it mean that foreign money keeps out for the next couple of years? Or worse, more money moves out? I hope not, but I fear it might.

The Japanese did not allow their banks to fail when their bubble burst in 1989. The relevant authorities in the US are smart enough to know what they are doing. But if US goes the Japanese way and capital keeps getting crunched, what happens to capital inflows into stock markets of emerging economies like India?

Lets hope that I am wrong, totally wrong. In fact, I would love to be proven wrong.

Deepak says sudershan is Best said...

Mr sukhani It seems like market is more or less near its bottom or we can say that shares are good to buy for long term now,I wanted to be a trader but it seems quite difficult & I think its better for me to sit in sidelines and once I recover my losses in long or probably in short term try again.

The most important point which I think is which sector & shares to accumlate at these levels ,I know that your suggestion are basically for trading perspective because in short term people need more help rather than those who are investor ,If you could please suggest shares which we can start accumalating in lots.It will be so grateful of you.

I know that PSU banks are good but do you think valuation are good in comparision of others ?please suggest!

anshul said...

sir plzz post some view on market...we really need u..plzz update the blog thats a humble request to u from ur fans

Deepak says sudershan is Best said...

Mr Sukhani As you suggested earlier that 3600 (50 % retracement) should be the level from where the new bull market should start & most of the analyist have the same opinion including Rakesh Jhunjhunwala ......

I know that if you are in bear market than it is better to be bearish as prices breaks on lower side and you will get the lower level irrespective of where you go short But Mr sukhani Please tell us do you think that its really possible to break the levels of 3600.Does it look logical after seeing what the markets did on 18th september & what chances would you give to this as there are lots of trader who are sitting on loses & trust your advice like god .because if 3600-3800 seems to be bottom than its the best chance for trader to recover atleast some losses .........

waiting for your post desperately