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

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

time.

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.”

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:

1. 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.

2. 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.

3. 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.

4. 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.

5. 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.

6. 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.

8. 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.

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?

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