Tuesday, August 31, 2010

Dismayed

A few days ago, I read a news story on SEBI directions to Media companies about 'Private treaties" between these companies and companies coming out with public issues. It seems that the media companies entered into agreements with companies which were planning issue of shares to public. Under the agreement, the media allowed the issuing firms to place advertisements in the media and in exchange, provide shares of the company to the media house. So, the ads were placed at no cost, instead the company gave shares to the media company. Now services in exchange of equity is fine, but when the receiver is a media house, then a lot of questions are raised.

SEBI has now directed the media companies to disclose such agreements. This is fine. But, what about past agreements? By accepting such shares, the media becomes an interetsed party in promoting the company. They are no longer a neutral reporting entity. Such acts cast a long shadow on the reputation of media personalities. When the media describes an IPO as worthwhile or similar, was it giving an honest opinion or was it trying to push the value of shares owned by it?

I am dismayed when I come across such news. It seems that 120 crore Indians are surviving somehow amidst a sea of corruption.

Poll Results Summary

Here is the final result of a poll taken over six days, ending on Aug 28.

Correction continues

One of the underlying principles of technical trading is: markets will correct.

The corrections will not come on demand, but they are inevitable. just when 'everyone' said that 5500 has become a new base, the Nifty decided to fall. Today morning as I write this, the U.S. markets have gone down overnight. Asia is lower and the Nifty may well test 5350.

I feel there are two trades in the Nifty: First, a sell on rally for a test of 5350 or lower. Second, the bounce from whatever lows are made. I usually take only one side of the trade (long or short, ignoring the signal for the other side) but these two trades seem to be worth taking.

I cannot say if we are in 'the' correction. We may well be. If this is the normal down move after an intermediate uptrend, then we should expect 500 to 600 points of decline from the top, eventually.

Friday, August 27, 2010

American Markets slip, what's in store or us?

As the U.S. markets fall day after day, with the Dow moving below 10,000 - a pychological number - there are questions on what our market may be doing.

According to me, the Indian market is already in a correction. My support level was 5480 on a closing basis. The Nifty closed below 5480 on Wednesday, and, remained lower on thursday, thus confirming the start of a minor down move.

This was the analysis. A key question is: how do I trade this?

Many methods:

1. Follow our trading systems. keep volumes low on long positions, while increase volume on short positions. In this way, we use position sizing to manage the directional view.

2. Stay away since we are in a corection, and, corrections are difficult to trade.

3. Shift to a lower time frame to take short term trades, only on the short side.

There may be many oother ways of converting our analysis into actionable ideas. How about some inputs from readers?

Wednesday, August 25, 2010

Trading Mistakes

The Crosshairs Trader Blog posted an interview with Dr. Doug Hircshhorn, author of 8 Ways to Great: Peak Performance on the Job and in Your Life.


"Now, the biggest mistake I see people make when setting goals for their trading is that they set money-oriented goals. And that’s a big mistake because for a goal, to be set up for success, it has to be entirely in your control. Making and losing money are not in the trader’s control. If it were, then you could just say, I want to make a million dollars this year, and you would be making a million dollars this year.

What is in a trader’s control, is the quality of trades they make or the work that they do beforehand. Just like in baseball, a batter only has control over the pitches that he chooses to swing at. Once he hits the ball, once the trader makes the trade, it is out of that person’s control. It goes into the environment, there’s physics that attack it, there are players out in the field that decide whether the ball lands safety and the hitter gets on base.

In the trading world, once you push the button, the world, the economy, the markets, decide whether you are going to get paid for that trade or not get paid for that trade. Then it comes back to you and you get a chance to make another decision (called managing the risk of the trade). You get to decide whether you want to add to that position or take the risk off, but your job as a trader is not to determine whether you make money or lose money.

Your job as a trader is only to make high-quality trades every single time. You have faith that if you consistently do the right thing, then over time you will make money and have a successful career in trading."

Monday, August 23, 2010

Business or Entertainment

CEO of Behance says:

At the end of every meeting, go around and review the action steps each person has captured.
The exercise takes less than 30 seconds per person, and it almost always reveals a few action steps that were missed.
The exercise also breeds a sense of accountability. If you state YOUR action steps in front of YOUR colleagues, then YOU are likely to follow through.

(from http://www.businessinsider.com/)
 
My Notes:
 
For Traders, we should rephrase this advice. After every TV viewing session, sum up the action plan that you have captured. The purpose of spending so much time is to get some actionable ideas. So, write those ideas down. Then you will realize if the time was spent on business (actionable ideas obtained) or on entertainment (did not understand what the program was telling me!).

Buying after blood in the streets

[Added: I have a poll going, just look at the right side column, and please vote]

from : http://blogmaverick.com/2010/08/20/the-stock-market-is-still-for-suckers-and-why-you-should-put-your-money-in-the-bank/

Quote
I’m not saying you should get out of the stock market. What I am saying is that it is not a bad thing to accumulate cash right now. Retention of capital is a good thing. Don’t go chasing stocks. Something is going to give in this market. Like I said, I dont know what it is, but I want to have as much capital available as possible for when it happens.


Baron Rothschild said “the time to buy is when there is blood in the streets”, Warren Buffet said it differently when he said ” you pay a very high price in the stock market for a cheery consensus”

This is the time to start saving for a “bloody day”. There will be a time when capital regains its scarcity. When it becomes more expensive. When it does , what do you want to have in as great an amount as possible ? Capital.

So save your money. Pay off your credit cards. Put your money in the bank where it is insured. Be patient. Get a good nights sleep knowing that your money is not going any where and just wait till your capital is in demand and you get paid for it. When everyone is complaining about the money they lost, you will be ready to step in and buy.

That is how fortunes are made. Having money when no one else does. And you can take that to the bank !

Unquote

Sunday, August 22, 2010

A Song to remember

Here is a song for people who remember Manoj Kumar's films. [The audio is a test for a podcast system that I am testing, but the song is real. ]


Sectors with potential

[added: I have a poll going (just look at the right column). Please vote in it, so that we get a large response.]

Inside the stock market universe, there are different undercurrents. Some sectors are outperforming, while some are underperforming. This cycle of performance itself has two components - transitory and long term. There are sectors which go through a rally for a short period - transitory. These bursts of enthusiasm occur mainly due to short term interest in the sector, which fizzles out soone enough.

Long term sector outprformance is what traders as well as investors should be looking at. Such moves last long enough for traders to make money.

This concept of transitory and long term outperfomance applies to individual stocks also. If the broad market is falling, most stocks will go with it, therefore what we are seking is outperformance rather than a different path.

Just to give an example, last year around August 2009, I was upbeat on a stock called V-Guard.Then it was selling around 80. Now, a year later it is selling around 160. That is a 100% return. Probably, there are many other stocks which have given similar returns over the past 1 year, but we do not know about all of them - I had the charts of V-Guard which I saw was likely to outperform. My point is: if you get a stock like this, stick with it. There were periods when the stock was doing nothing - that's part of the market, so far the charts hold - which means prices do not go below your cutoff point, we have to accept trading ranges in long term uptrends.

Saturday, August 21, 2010

Experimenting with a new layout

I am experimenting with a new layout for my blog. It is raw, very much in Beta. But please have a look:

http://tradingwithcharts.blogspot.com/

Billionare Ken Fisher is buying, but his track record?

From: Mish's global economic analysis:
Quote
Ken Fisher says high levels of pessimism are a reason to buy stocks. Fisher, who oversees $35 billion from Woodside, California, said in an interview on “Bloomberg Surveillance” with Tom Keene. “My bias when pessimism is high is to own equities.”

In 2007, Mr Fisher said:
This is a time to own stocks. Here are some companies that will participate in the prosperous economy of 2007:

Home builder Pulte Homes - PHM
Toll Brothers - TOL
Beazer Homes - BZH

Absurdities


Look - Anyone can be wrong, but quite frankly that is absurdly wrong.
Pulte Homes was $34 then. It is $8 now.
Toll Brothers was $34 then. It is $16 now.
Beazer Homes was $44 then. It is $3.75 now.

Someone let me know if he ever issued a sell signal on those.

Regardless, Ken Fisher is consistently bullish. In fact he HAS to be bullish because you cannot manage $35 billion without being bullish. Ken Fisher's advice is designed to do one thing - make money for Ken Fisher.

UnQuote

My Notes: Readers know that I do not have a high opinion of investment bankers and super rich financial wizards. So, I am not surprised that Mr Fisher seems to make money only for himself.
Please vote in a poll that I have set up. Look at the right column whenere you will find the poll.

Which is your favorite?

This post comes from men's comments:
quote
Is cnbc the leader? may be on the TRP, but not otherwise. For Ta NDTV is far ahead and also Ashudutt of ETNOW is also doing a good job in educating the investors. Yes Cnbc has marketed their channel well but it is far from reliable.


CNBC= Cannot Be Correct, sorry if I have had a different view
unquote
 
So, on the right column I have a poll for you to respond to: Which business channel do you watch most? I am not asking for your favorite. I am requesting you to identify the channel which you spend the maximum time on. Please do respond.

Youtube Stars make 45 Lakhs a year and More

There are 10 independent YouTube stars who made over $100,000 in the past year, according to a study done by analytics and advertising company TubeMogul.

Business TV channels face choppy markets with dismay

There are six business TV channels in the country - CNBC TV18 which is the acknowledged leader, Awaaz, UTV Bloomberg, ET Now, NDTV Profit and Zee Business. The channels are worried about retail investors turining away from the markets due to the choppy conditions prevailing.

Gold at 1227, buy on a dip

Gold is trading at $1227 at 2201 IST. A technical trader suggests buying Gold on a dip near $1217

FX Reserves Fall

(Reuters) - India's foreign exchange reserves fell to $282.79 billion as on Aug. 13, from $287.356 billion in the previous week, the Reserve Bank said in its weekly statistical supplement on Friday.

Sugar climbs to 5 month high

Bloomberg reports that sugar prices climbed to a 5 month high when the USDA reported tight domestic supplies.

Stocks, Oil fall on economy

U.S. Stocks and oil fell on concerns that the economy may be heading for a period of zero growth. The Dow was down 80 points at 2138 IST while the S&P500 was down 4 points.

The Secular Bull Run

Thursday, August 19, 2010

Do not worry - Help is here

Gulshan wants help:
Quote
Why is that you are using fundamental terms in the blog for past few weeks?

If this indicate that TA should be based on fundamentals?
I am confused?
Follow TA or Fundamentals or both of them.

Please help.
UnQuote
 
My Notes: Help has come quickly, so do not worry. I am quoting below Charles Dow, known as the father of classical technical analysis:
In an editorial written in the Wall Street Journal, in 1901, he said :
 
"The market is not like a balloon plunging hither and thither in the wind. As a whole, it represents a serious, well-considered effort on the part of farsighted and well-informed men to adjust prices to such values as exist or which are expected to exist in the not too remote future. The though with great operators is not whether a price can be advanced, but whether the value of property which they propose to buy will lead investors and speculators six months hence to take stock at figures from ten to twenty points above present prices" (July 20, 1901).
 
(bold, italics, mine)
 
My Notes again: Well, in simple English, great operators buy shares when they feel it is undervalued. Then, after six months, shares may reach their normal valuation thus giving profits.
 
When you are investing, you have to consider the value atatched to an investment. Then you use charts to time your entry if possible, and, to detect signs of trouble / profit areas.
 
In trading, there is no need for any value examination, just look at technicals.
 
In my post, I had written "Growth stories are good for trading with a stop loss, but investing in them, specially without adequate knowledge, is a disaster."
 
You can trade any instrument with proper risk control, no need for any fundamental inputs.

Wednesday, August 18, 2010

Is Retail a Bubble?


Is Retail a Bubble?

Retail stocks are currently valued at extraordinary PE ratios. The analysts coming on TV keep on repeating a simple mantra - the future looks bright.


Now, I have heard this before, during the IT boom, during the SEZ boom, during the Real estate boom....

TRENT for example, has a market price of 1052. Its 2010 earnings are 0.79, yes seventy nine paisa per share giving a PE of over 1000. If we take the Q1 earnings (Rs 4) and multiply it by 4 to get 2011 EPS, that comes to 16, giving a PE of 65. Same story for Shoppers stop.


Why I worry (a habit!)

Today morning while I was on Awaaz, I heard a strong endorsement of retail stocks from the anchors as well as from an analyst. This led to to worry about retail investors (you and me) getting pushed into buying these stocks. Always look for value in an investment. Growth stories are good for trading with a stop loss, but investing in them, specially without adequate knowledge, is a disaster.

Tuesday, August 17, 2010

The RSI as an entry signal

Our reader wants to know how to plot the LBR RSI in Trend Analyzer. This is easy to do. Since the concept was interesting, I am discussing it in the blog.

What is the LBR RSI?

This is used in a  method called 'Momentum Pinball' discussed in the Raschke and Connors book, Streetsmarts. The method calculates a 3 period RSI of a one day ROC. When the RSI falls below 30 in an end of day chart, a buy signal is triggered. Buying is done the next day when the first hour high is crossed. A sell signal is triggered when the RSI goes above 70. Again, actual selling is done below the low of the first hour, the next day.

How to calculate this in Trend Analyzer?
1. Insert Indicator: Rate of Change
2. Values: Period1 = 1, Period2 = 1, Extreme High = 70, Mid Point = 50, Extreme Low = 30
3. Click on Advanced: click on RSI and change period to 3.
4. In the visibility option, you may like to turn off the mid point which is 50, because that is not used.

Here is a chart of the Bank Nifty with the Indicator:



Like most setups, this is is best used in the direction of the trend. This is my thought, not from the book. But going with the trend is usually the most sensible way to trade.

Another option is to use 3RSI3, which is the 3 period simple MA of a 3 period RSI. (In Trend Analyser this is easy to create. Insert the RSI indicator, Period=3, Smooth=3. Change the Extreme High and Extreme low to 70 and 30.

Here is the BankNifty chart with this indicator:


Sunday, August 15, 2010

Traders should trade, Investors should invest

amitkbaid1008 says:
"Quote
Of course, traders who followed every twist and turn of Fear and Drama went out of the market, losing their capital. But they did get their two minutes of adventure.


What would you like to do? Bored or excited?

So should we stop trading and invest only?????"

My Notes: amitkbaid1008 is quoting from a post I made today. Then he asks: So should we stop trading .....

I believe that if you are a trader, then trading is your work, and, work is worship. But you trade according to the movements of the market, not because you are bored.

If you are an investor, you should not bother with short term swings for the sake of adventure just because markets have become boring.

If markets are dull, we adapt to them instead of asking markets to change.
A second point I made was, slow moving trends are boring so media seeks to find reasons for fear and drama. But, we are not interested in excitement, our objective is to get positive returns.

Buying at current price

Greetings on Independence Day

Is ' buy it and forget it ' possible?

If we assume that we will see higher stock prices over the next 5 years, then it is possible to buy stocks now, and, ignore the inevitable dips or corrections.

I do assume that we will see higher prices after 5 years.

This post is in response to rajv malik who wrote: "happy independence day to you and all blogmates !

on this independence day can you suggest a list of five stocks which one can buy at any price and then sleep over them forever."

Well, I am not sure about 'any price' and 'forever'. There is a time to buy a stock and a time to sell it. So, I will rephrase this request and try to identify stocks which we can buy now and hold for a few years.

At least one of them follows (I have positions in it):

Canara Bank







Should Investors get Bored?

For the mainstream media, what sells most? Fear and Drama.
What are you most likely to watch on the Media? stories of fear or high drama!

If the market were to fall by 300 points (Nifty), the business as well as news media will be flooded with the news and analysis. TRP's will go up, there will be no need to think of filling up air time, so much analysis can be put in. Fear sells.

Suppose an analyst were to suggest a doubling of price for a small cap and it actually doubles. Wow! Media can then begin linking some small/mid cap to sensational news event which can get high TRP's. Drama sells.

Now: Does this fear and drama make money for you? Ask yourself: Do you follow media to provide more audience (therefore higher TRP's and ad revenue) to the media companies? Which means, are you watching media as an act of charity to media companies? The anwer is No.

Investors watch media to get better informed. Fear and Drama do not help them in meeting their investment objectives of maximising risk adjusted returns.

Boring news makes money. Over a period of one month, the market moved nowhere while your portfolio moved up by 1%. So boring! After one year you realize that the Nifty moved up by 6% while your portfolio gained 14%, outperfoming bank interest rates by a wide margin. Even more boring!

Of course, traders who followed every twist and turn of Fear and Drama went out of the market, losing their capital. But they did get their two minutes of adventure.

What would you like to do? Bored or excited?

The MY Ratio

(from tradersnarrative.com)

MY ratio which stands for the middle-aged to young ratio or simply Middle-Young.


This ratio is key because in these two different stages of life, people have very different priorities which, aggregated as a great galloping herd, has an inevitable effect on the pattern of savings, spending and investing that happens in a given society.

When you are young, typically, your income is very small to non-existent. You are interested in spending primarily. Both as a means of entertainment and as a way to gain education in order to achieve your full earning potential later in life. So at this stage, the average young person has much higher expenses than income - which results in debt.

On the other hand, in middle age, the average person has reached their peak income potential. They do have expenses obviously but they are also mindful of their impending retirement and as a result, saving a portion of their annual income and investing it. The majority of this investment flows to the equity markets because that is where the best risk adjusted returns are.

So it would follow then that demographics and especially the MY ratio potentially not only describes the fluctuations in the stock market, it also may explain the expansion and contraction in the Price/Earnings ratio.


After all, when you have an abundance of middle-aged investors chasing after stocks, they will be ready to pay a higher and higher price for them. And inversely, when you have few middle-aged investors there will be few competitive bidders for equities, allowing stocks to become extremely ‘cheap’.

My Notes:

For India, the Y is much more than the M since we have a young population, so the MY ratio will be low. Does this mean that PE Ratios in India are unlikely to see big expansions since the young may not be prepared to pay higher and higher prices for stocks. Most of the stock market gains may come from a growing economy rather than higher valuations. I would think this is good news for investors.

Tuesday, August 10, 2010

Charts for thought



On Friday, in the USA, a jobs report caused a sahrp drop in the S&P from 1125 to 1110. Then, intraday, a rally started which took the SP back to 1121. Afraidtotrade.com has a 5 minute chart of the SP highlighted the technial signals which indicated the en of the down move & start of an intraday up move. Here is the edited chart:


Here are comments from afraidtotrade.com

1. Failed Impulse Sell


Generally, after a market makes a new price, momentum, and TICK (market internals) low, we would expect lower prices yet to come. A good trade set-up – that I call the “Impulse Sell” – occurs when price rallies into resistance after a sharp downward thrust. We expect lower prices ahead.


2. Rounded Reversal Formation

3. “Kick-off” Sign of Strength

4. Bollinger Band and 50 period EMA Breakout


I’m not sure this gave you much of a ‘warning’ but it was the final signal needed – the final nail in the bearish coffin for the day – that odds strongly favored a reversal. This was your execution signal to get long – or take your stop-losses if you remained in an intraday short-sale position.

from: http://blog.afraidtotrade.com/lesson-the-four-early-warning-signals-given-before-the-afternoon-reversal/
 
 
 

Sunday, August 8, 2010

Investing is different

gourv says: "Todays blog of u seems like that of a fundamentalist.words like investment value creating confusion in my mind"

My Notes:

My post dayed 25 March 2009 says this:

How I approach the investment cycle.



1. Identify a stock I want to own if price was much lower (fair price)

2. Wait for a dip, as deep as possible. Sometimes I wait for many years.


3. Buy half of the planned quantity.


4. Wait patiently. if the stock falls and becomes half, i will buy the balance quantity provided nothing else has changed.


5. Stock selection: good managements, share price falls due to business cycles and not due to 'news'.

Added today:
Investing is different from trading. Stock selection is an important part of investing in stocks, therefore I was explaining why and how I opt for small/mid caps.
Given two long term charts, both making bases and breaking out, how do you choose between them for investment? An easy answer will be to go for both, then cut the on that underperforms. But, that may actually cut off the sleeper, a stock that suddenly wakes up and runs. Trading is our business, we do this for an income, but investing mean the parking of whatever capital we have for safety and appreciation.

Is Hyperinflation coming?

Half the experts in the USA are worried about deflation, wanting the U.S. Govt to pump more money to increase purchasing power of the American popluation. Half the experts warn that (a) Enormous budget deficits, (b) low growth rate, (c) poor savings rates (d) record sums of money put in the economy over last 2 years have almost guaranteed hyperinflation.

Now, we do not know what the future holds. If we have deflation, then the value of money should increase. Money in the bank will become more vaulable while asets will become less valuable. But, there is one point to remember: modern gobernments have many ways to try and stimulate demand, therefore, deflation i a worry but not a catastrophe.

What about runaway inflation? In October 2009, food inflation in India was about 14% and we had repeated assurances by Prime Minister Dr Manmohan Singh that food prices will come down over the enxt few months. Instead, ten months later,in July 2010, food inflation continues at 12.4%. Again, the PM has assured citizens that inflation will come down in the next few months!

My point is: For any govt, the control of inflation is difficult, if not impossible. Therefore, as traders, we should plan for an inflationary environment, which if it come about, will persist for a long time.

Marc Faber suggests that hyperinflation is coming. He also suggests that stocks will outperform bonds (bank deposits for us). This view seems fair since assets suddenly start increasing in value in times of inflation.

For investors, the problem is elsewhere. A lot of stocks are clearly overvalued, even now. While they may well be trading candidates, putting our hard earned money in such stocks carries increased risk of loss of capital.

This is what I am working on, for my investment portfolio.

Some small cap and mid cap stocks continue to have value. Which mean they are available at low valuations, and, they make money. The list is small, but it is there. When we invest in small caps with value, this is what happens (all references to small caps mean small and mid caps that have value):

In times of momentum driven rallies, small caps underperform momentum stocks by a wide margin. Nobody wants to buy value.
In times of declines, small caps fall less than the general market / momentum stocks. Volume is low since nobody wants to buy them in declines.
In times of steadily rising bull markets, small cap catch up eventually, outperforming momentum / growth stocks by a wide margin.

In inflation induces rallies, small caps should give outsized gains. But, such gains take time to mature.

Friday, August 6, 2010

The Best Investment

Behind the Headlines says:

I truly believe that the best investment these days is in yourself - education, your own business, etc..


My Notes:
 
These lines are probably worth their weight in Gold. In these uncertain times, improving ourselves through education, our business through investment in time, energy, money is probably a better idea than the next hot tip in shares.
 
Keeping with this spirit of learning, I am keen to begin a series of simulated and live learning programs for traders.

Missing retail

Why have all the retail investors gone?

Retail is gone because they think the whole thing is rigged. High frequency trading, insider information, overpriced IPO's, manipulation in mid + small caps, and the like all contribute to the feeling.

Then there is leverage. The average trader can trade 10 times more than his money in futures,  and lose money faster than ever before. Too bad nobody realized that these things are mathematically defined to lose money.

So, can we make money? Sure we can. Stocks and F&O have their place and I am not going away just yet. But let's take them for what they are - manipulated markets.

Marketing Tricks for selling (anything?)

From Michael Kahn’s blog, Behind the Headlines:


Here’s a marketing trick from a bucket shop. Send out 10,000 mailings – 5000 say buy stock X and 5000 say sell stock X. Let’s say X goes up.
Now take the list of 5000 mailings that said to buy and send 2500 with a buy on stock Y and 2500 with a sell on stock Y. Let’s say stock Y goes up, too.
Now take the 2500 winner names and send 1250 buys on stock Z and 1250 sells on stock Z. Let’s say Z goes down.
You now have a list of 1250 people who think you are a genius with 3 picks in a row. Rake in the subscription money and let reality begin. Who cares? You just sold 1250 subscriptions to people who won’t renew. Say $250 for an annual subscription times 1250 people and you made $300 grand. What if you started with a list of 100,000 names. Now you are making some serious coin.
This is the land of crushed hope and dreams that Wall Street has become. Honest purveyors of financial advice are swamped by the crooks. A good bear market thrashing is necessary to “drain the swamp” as Nancy Pelosi likes to say.

Thursday, August 5, 2010

Your help needed for a survey

Premanand Risbud, a young Technical Analyst is currently doing his Masters in the UK. He is a member of the Association of technical Analysts, India (www.taindia.org)

He is doing a survey as part of his Degree. Please help him by participating in it. His email is given below:

Quote
Hello, I am Premanand Risbud, a member of ATA. For my research project, I need you little help.

Please see below the online survey link. I am doing this survey for my research project of MBA. There are only 10 questions to answer & the whole process will take less than 5 mins.

You need not participate if you don't wish to. Also if you wish to exit in between, please click 'Exit Survey' at the top right corner.
You can take part in survey multiple times. The survey will close on 15/08/2010. Please reply to it as it will help me in my research work.

Click here to start the survey http://www.surveymonkey.com/s/2XT28R7

Thank you
PREMANAND RISBUD
Coventry,
West Midlands, UK.

Unquote

Failed Patterns

Devv asks:
"I have a question for you ..now that the s&p 500 has crossed over the 1016 mark, the right shoulder of the h&s pattern, does this confirm the failure of the h&s pattern, more so since it has also broken above its 200 and 127 dma's...i would like to know if this is a confirmed failure of the h&s pattern what is the usual expected move after such a failure?? It would be great if you could kindly answer this question of mine....."

My Notes: Here is the chart for the S&P500 with some comments. Detailed observations follow.


The breakdown of the large bearish head and shoulder pattern was acompanied by a few days below the neckline and then a sudden thrust above the line. After a big rally, the SP500 dipped then resumed its advance, making a pattern of higher highs, higher lows. This was around 1100. The sharp upside momentum, the up trend, as well as spending just a few days below the neckline suggested that the neckline was break is not valid. At least for now, the pattern should be abandoned.

Now, the classical method of identifying a failed head and shoulder pattern is a close above the high of the right shoulder. But, to me, momentum is more important. Here, the decline showed no momentum at all, while the subsequent rally did. Once prices went back inside the neckline and made an uptrend, the pattern should not be considered. The easiest rules are the best. A confirmed higher highs - higher lows pattern tells us we are in an uptrend.

There is a school of thought that says a failed pattern become a reversal pattern, pointing to big moves opposite the failure. In simple words, if the bearish pattern fails, expect a big up move. I do not care for such rules. The up move should be taken because of your trend methods, not due to some failure or other pattern.

Wednesday, August 4, 2010

Trading In Forex

Forex offers a 24 hour platform for trading. Since the Forex market is large, worldwide, it is not subject to manipulation. Currency pairs trend fairly well, therefore forex remains an area where trend trading makes money.

For Indian traders, entering the forex market has its difficulties. Here are some ways to participate in this market:

1. The MCX and NSE, both offer futures contracts in Rupee against US Dollar, British pound, Euro and Yen. There are questions of liquidity, but this is an easy to use vehicle since traders probbaly have access to MCX and NSE. Apart from liquidity, there is the problem of limited choice of currency pairs, only 4 and all against the Rupee.

2. Opening an account with a foreign bank / currency trading house. The forex market does not have a forex exchange. large banks and ealers offer trading opportunities by giving buy and sell quotes that enables a trader to buy and then sell to the trading house. Opening an account with the foreign currency house requires remittance of foreign currency. I am not sure if RBI regulations permit payments for speculative transactions. 

3. Trading with a Bank which has branches in India. Most corproates trade in Forex through some bank or the other having branches in India, but I do not think that indiidual traders are allowed access to these trading systems.

4. Trading with a representative of a foreign trading house by payment in Rupees. I have ben told that some people take payment in rupee and open an account for the trader with a foreign currency trading house. I think this has some legal difficulties, and, it is best to stay away.



My point is: trading in forex requires platforms that may not be accessible by Indian traders. If readers have more knowledge, please share will all of us
 
 

Monday, August 2, 2010

Fully Correlated

I have observed that India is almost fully coupled with developed markets. We sometimes diverge but that should be considered as noise, rather than any decoupling. Now, wiser heads are asying this. reuters runs a perort which says that emerging markets are correlated, but also:

"More significantly, the beta of emerging equities — measuring price fluctuations relative to developed markets — has fallen to one since the start of the year, suggesting that emerging markets now merely track developed markets. Gains are thus likely be modest even when global sentiment picks up."

(http://ftalphaville.ft.com/blog/2010/08/02/303676/correlation-fatigue-emerging-market-edition/)

In layman's words: This means that emerging markets will not outperform. They will move exactly as the developed markets do.

Sachs prescribes telescope over microscope

Jeffrey Sachs, Professor at Columbia Universitymajor and one of Time magazine’s “100 most influential people” recommends that our country takes a longer-term view in handling our problems. Instead of analyzing everything through a microscope, Sachs realizes that peering out over the horizon with a telescope may provide a clearer path to success versus getting sidetracked in the emotional daily battles of ideas.

No need to wait

In 'earlier' days on a trading day, Indian traders wait for the Singapore Futures exchange to open at 7 AM IST when the first rates of the Nifty on SGX were available.

Now, thanks to 22 hour trading on the CME, you can get this information earlier. On Sunday, the CME had the last price at 5378 while trading was closed. Today, Monday morning at 6:40 AM , the CME is trading with the Nifty quoted at 5393. As time goes by, the ability to trade 22 hours will give an immense advantage to non-indian traders.

KK asks: "WHAT IS THE DIFFERENCE BETWEEN A MEMBER SOCIETY AND A DEVELOPING SOCIETY OF IFTA?"

My Notes: When a society takes a membership of IFTA , for two years it is given the status of developing society when it is exempt from payment of membership fees and also does not enjoy voting rights. After two years, it become a full member. The Association of Technical Analysts, India is currently a developing society. We have completed one year.

NIFTY

The Nifty seems to be entering a period of some kind of correction. Here is a slide show setup for our subscribers which explains why we think so.