Sunday, November 11, 2007

Wishing happy Deepavali & Proseprous New Year

November 9 was Lakshmi Puja for many Indians. I wish all readers a prosperous year ahead. May the Markets forgive our follies and reward our discipline.

On Thursday morning, on CNBC - TV18, Udayan asked me for one pick that could give 50% returns over the next one year. Now, the returns are given by the market. We can only identify appropriate stocks for investment. Then it is for the Market to reward us. I offered two suggestions - NTPC (240.75) & Neyvelli Lignite (165.10). Both the stocks belong to the energy sector which has been out performing. We are seeing new highs in these shares - a sign of strength. Now, the suggestion is made for the position trader who may wish to buy and hold for a reasonable period of time. But, swing traders and day traders can also keep such stocks in their trading list - to trade in such shares, prefrably only on the long side.

Deepavali trading was a big disappointment for traders looking for a shubh mahurat (good luck!). In one hour of trading, the Nifty fell over 80 points although the final close showed lower losses due to the average close. The Index broke down from a trading range which had a width of 200 points. A pattern target is calculated at 5600 approximately. If this support is broken, then the next support comes in around 5350. We may well see these levels in the next few days. The primary trend of the market remains up. The Intermediate trend is also up. This trend started at 4000 and reached 6000 in just a few weeks. This large intermediate rally can see a short term correction without getting affected. The short term trend is down.

Thursday, November 8, 2007

When is the trend not your friend ?

Tom Demark says this: "The trend is your friend except when it is about to end". This brings up the big question - what indications suggest an end to the trend ?

There may be many signs for a trend getting exhausted, but before searching for these signs, it is wise to identify the trend itself.

The Indian Stock Market has moved up from 920 in April 2003, to 6020 in November 2007. That's a remarkable increase of over 6 times in 4+ years. After touching 6020, a correction may have started with the Nifty closing at 5700 on Thursday, November 8. There is a three day weekend ahead, with Friday as a holiday for Deepavali.

Now, the long term trend is the one that started from 920. That's a rise of over 5100 points. A 300 point correction is not a sign that this uptrend is over. The primary trend is up - this is a long term bull market.

An intermediate uptrend started in August when the Nifty dipped to 4000, then rallied. This rally has seen a gain of 2000 points, about 50%.