Thursday, June 25, 2009

Trading for the next big news event - the budget

Expectations from the budget can be on two counts:
(a) There may be policy actions and steps that will benefit market participants, and,
(b) A theme for growth may benefit the economy and therefore benefit the market in the long run.

Direct benefits includes (a) 'tweaking' the STT (this is the term CNBC is using) which ,means reducing the rate , (b) Giving direct tax benefits to infra or similar companies. (c) Allowing majority control in Insurance (d) Allowing FDI in retail (e) Channelling public provident fund savings in the stock market, and, (f) announcing sales of PSU shares.
I do not feel that the market is going to get (a). Why should the govt reduce STT ? Money from STT is used to provide employment to millions of rural poor. This step will benefit only a few brokers who have large proprietory trading operations. (b) is possible. (c), (d) and (e) are extremely unlikely. That leaves sales of PSU shares which are likely to take place.

Long term gains for the market will flow from improved health of the economy. The market does not get excited about such steps, because they do not carry glamour. With many financial constraints, the Govt is unlikely to reduce tax rates for companies. More likely, some kind of long term capital gains tax may come in.

These are my assumptions, on which a budget scenario can be built.
For investors, buying is possible in Infra, Large PSU and Private Banks. Long term investors can buy for short term capital gains. I still plan to keep the 4200 levels as a stop loss. (Note how the market found support, then bounced back from 4200).

For traders, wishing to take posiyions in F&O, it is too early to devise a strategy. Pehaps we should review the budget theme again on July 3 or 4.


Student Of Market said...

Before the budget news event, we have another news event - the reduced rainfall forecast.

For today's trading, might it dampen the sentiment? And if so, what would be a good trading strategy for the day (25 June)? I tried to analyse this in my blog in terms of developing an actionable plan, and thought 4260 spot Nifty will be an important level to watch for today.

Of course it can be a case of fools or students rushing in where angels and masters fear to trade !!

warm regards,


Brief and straight to the point,July 3 or 4th will be a good day to review.I need thank your patience for maintaining few blogs.

If u dont mind,sir why did u removed your profile and technical trends link,plz replace it if posssible.

Warm regards

gurvi said...

Cool...Many Thanks for your comments.

Hope budget bring about some cheer to stock market :)

Patrakar said...

Sudharshan Sir,

I am a great admirer of your views and wanted to clarif one doubt - if you look at the last few days action, could it be that we are in process of forming another Head and shoulders formation. Just a point that on 16 may when markets zoomed up in UC it was accompanied by huge volumes - a distinguishing feature of the left shoulder. Two weeks back we got a long legged doji on weekly charts and 5/13 crossover has given a sell signal ; could all this portend to a trend change on the downside ?




QOUTE"Money from STT is used to provide employment to millions of rural poor".I strongly feel that such statements cannot be used to justify unjust taxation.In my opinion the following are the unjust taxes and reasons thereof
1)DIVIDEND DISTRIBUTION TAX : This tax is blatant double taxation as dividend is paid from profit after tax.
2)SERVICE TAX/VAT and FBT : A person should be taxed for on his income and not his expenditure.
Also we should stop being sympathetic towards rural population and especially farmers.They enjoy free electricity and never pay a single penny in taxes. It is we urban folk who are keeping the nation running.Also the INDIAN farmer is highly emotional and impractical.He is responsible for his own misery. They resist all attempts to modernise agriculture.It is the corporate sector which pays the maximum taxes and hence should be given priority in all governmental programmes.

men said...

Mr. Sudarshan,
Could you please suggest how should one trade in the coming weeks, "for the moment you ignore the budget", given the following high and lows for the last 4 weeks
Week 4 high 4352 low 4140
week 3 high 4601 low 4207
Week 2 high 4689 low 4365.
Week 1 high 4633 low 4450
" This is to be treated purely for educational purposes"
Thanking you in advance.

solo said...

what should i do to become a pro. chartist on some news channel?

Pradhan said...

Hi Sudarshan, Nice piece of writing here. I am new to the markets and will definitely learn more with blogs such as these.

Dow finished well last night and I hope there will be a flourish in the Indian markets as well. But, do you see the news on the monsoons dampening the sentiment a bit?

men said...

Now that the govenment is thinking of a unique id, which is gonna cost 10,000 Cr, I woun't be surprised if he taxes the people some kind of a cess/tax.

utopia said...

Dear Sir...I am sorry for deviating the topic but please tell me how can and where I can learn technical analysis? can you please also tell us about your background and how is started your career?

Pi said...

question just came to my mind.. over the years from what you've seen of our markets - have our markets become more efficient or less efficient. In technical parlance when one is not able to make money by depending on past historical data to take trading decisions that market is said to be weak form efficient (EMH). Our markets have infact not even been weak form efficient, going by the simplest strategies still work. But what i was more interested to know is that whether this inefficient tendencies have become larger or smaller. What has your practical experience been. At least it seems to me seeing 2007-2009 that mkt has probably become more inefficient and opportunities to make money has actually increased these past 2 years than before. Or maybe its just a feature of bear markets that makes easy money if you follow the rules.

Further, I really think that letting in FII's direct market access will slowly destroy the inefficiencies and the easier strategies will stop working as they have in the west. Then we would have to get into high geekery like high frequency algos and GA and ANN to come with strategies. We should actively try to stop DMA. Yes i know - highly selfish act, but every1 is at some point of time :)

TOOCOOL7610 said...

dear sudarshanji

i am a great admirer of your analysis.i am a nifty trader and recently started trading on george kleinmen ema system which uses 23 period and 30 period emas but my problem arises when to take profits , i trade on all time frames simentaneously and with sl properly defined for each time frame separetely by all time frame i mean 5 min, 15 min, 30 min and 60 min 23 30 ema system, kindly help me out in making a proper strategy to take profits in all these time frames for your reference i must tell that 5 min ,15 min chart i use for intra trades and 30 min and 60 min for carry trades. thank you sir.

Junaid said...

Hi Pi,
U have got an interesting point. I would like to my views. Money making has become very easy since last year or so but NOT THAT MUCH AS IT ACTUALLY SEEMS.. If one would have gone long in the early going ( at lower levels), He would certainly have made a big lump of money. Many would have but i think majority didn't. there is a simple reason behind that.
1. If u were a Positional trader, u would always have feared of investing. the market falled so much, so rapidly, that one wouldn't have imagined. Hence, succeeded in destroying the investor sentiment. No investor seemed to have got any intrest in markets. I saw this in my locality that whenever anybody seemed to have been talking about the markets, the other (hurt one) would come and Say " Cut the crab Man".Its all Game Over.
2. If u were an Swing trader trader, u would always have waited for the dip before getting aggressive which unfortunately didn't came yet. Hoping, it may come in future. And it certainly may come, but now they don't seem to reap much out of the markets. Markets almost doubled in three months, so there r less chances of seeing the similar kind of move again.
3. Now it comes to Day Trader (we people) who uses his brain through out the day to get something out of the markets. Here he has different kind of rules to tackle with. Now, the question is, if u were disciplined and followed the rules fully. Were u able to make the money as much u were expected to make..????
Well from me, the answer again seems to be "NO". Not because i wasn't disciplined but again i think because i was disciplined. The increase in the volatility would make my stops to get triggered before getting on to track.
I had an money management rule, whenever i get stopped out thrice a day, i stop trading. So for many days, i had to go home with a loss, but not big. What saves, again discipline.
Again i had days where trade got into my favor but trailing stop getting triggered would make me to reap less. What causes, Discipline.

But looking at the overall performance, i would say, it was good if not bad. What helped. Discipline. So, discipline is must.

If u are disciplined, you would certainly make money if not that much as much u were expected to make.

Pi said...

I guess you might be writing the morning post. If you kindly answer this - on friday we had a breakout mid day that saw us making a trend day with unidirectional move. From your experiance what has been the follow through of such moves.

a. On days where global cues are mixed - like today
b. On days global factors are stacked up against the previous day's trend.

Do we see a gap in direction of move, do we see the gap being filled etc - where does one get in direction of trend ?

Pi said...

1. If i was a positional trader I would have followed technical analysis and not fundamental views of mkt men and general public. They are wrong as it is most of the times. If i saw a breakout/breakdown would get in.

2. Regarding the day trader - Life was pretty easy for the average day trader all through last year - especially in the bear phases. Large portions of the bearish moves happened through trend days without large gaps - meaning most of the moves happened after mkt opened flat or positive - giving most traders full advantage of large moves without having to risk overnight positions. It was much easier than trading on long side as long side gains mostly came through huge gaps.

3. It was easy in the sense we saw large sustained moves in either direction and many trend changes through the year - 7 to 8 month long ups and downs - each one giving an opportunity to get anywhere from 500-1500 points if one just got in and stuck with the trend