What do we do if the markets are sideways. Here is a guest post I had written for Subhankar a few days back.
http://investmentsfordummieslikeme.blogspot.com/2011/06/how-to-short-strangle-sideways-market.html
Wednesday, June 15, 2011
Sunday, June 12, 2011
Technicals for the Week
It was a range bound trading week with a slight negative bias. The trading range is narrowing and a break is imminent. This should give a move of 200-300 points.
1. The coming week has the Inflation Data on June 14th, Advance Tax data on June 15th and the RBI Meet on June 16th where I expect key rates to be hiked by 25 basis points.
2. The short term stochastic which are leading indicators and the MACD have given short term sell signals.
3. The 61.8 % retracement of rally from 5329 to 5605 comes at 5434 which is a key level. This is a good level to book some shorts and re-enter at 5385.
4. The Bollinger Bands hint at a bottom at 5348 as first target.
All in all, nothing much has changed.Levels on the downside are 5434 - 5384- 5328. On the upside are 5514-5550-5576.
1. The coming week has the Inflation Data on June 14th, Advance Tax data on June 15th and the RBI Meet on June 16th where I expect key rates to be hiked by 25 basis points.
2. The short term stochastic which are leading indicators and the MACD have given short term sell signals.
3. The 61.8 % retracement of rally from 5329 to 5605 comes at 5434 which is a key level. This is a good level to book some shorts and re-enter at 5385.
4. The Bollinger Bands hint at a bottom at 5348 as first target.
All in all, nothing much has changed.Levels on the downside are 5434 - 5384- 5328. On the upside are 5514-5550-5576.
Sunday, June 5, 2011
QE 3 Coming: What it means to the Layman
The US Government has been printing dollars and pumping in money to keep its economy afloat. We had Quantitative Easing 1, 2 and 3 may be on its way. What would be the implications for Global Markets?
1. QE-2 ends on June 30th. This means no more pumping of dollars and the Fed Balance Sheet begins to shrink. If there is no QE-3 expect the US market to collapse at least 20 pc and treasury yields to rise. The Dollar would strengthen and Gold and other commodities like Oil would flatten or have a slight dip
2. There is a delay in announcing QE-3. Markets first dip and then there would be a rise on the announcement. I feel this would be the most likely scenario.
3. QE-3 announcement comes through. Asset inflation goes on. US Dollar crashes, Crude jumps. If QE-3 comes through, within a year crude should hit 200 dollars a barrel, Gold 3000 USD an ounce and the US Dollar toilet paper.
How do we play the scenarios?
Right now, wait and do nothing. Technically wait for Gold to close 1570 dollars an ounce and then buy gold or wait for the announcement.
Equities are a no-no for the simple reason too many negatives. Inflation, rupee weakening are just a few negatives now.
If QE-3 comes and Equity markets do rise, I would still prefer Gold as US Dollar is a certainty then and Equities will just have small (maybe a few months) boost. QE-3 would likely set the road map for the next year or so for the world.
1. QE-2 ends on June 30th. This means no more pumping of dollars and the Fed Balance Sheet begins to shrink. If there is no QE-3 expect the US market to collapse at least 20 pc and treasury yields to rise. The Dollar would strengthen and Gold and other commodities like Oil would flatten or have a slight dip
2. There is a delay in announcing QE-3. Markets first dip and then there would be a rise on the announcement. I feel this would be the most likely scenario.
3. QE-3 announcement comes through. Asset inflation goes on. US Dollar crashes, Crude jumps. If QE-3 comes through, within a year crude should hit 200 dollars a barrel, Gold 3000 USD an ounce and the US Dollar toilet paper.
How do we play the scenarios?
Right now, wait and do nothing. Technically wait for Gold to close 1570 dollars an ounce and then buy gold or wait for the announcement.
Equities are a no-no for the simple reason too many negatives. Inflation, rupee weakening are just a few negatives now.
If QE-3 comes and Equity markets do rise, I would still prefer Gold as US Dollar is a certainty then and Equities will just have small (maybe a few months) boost. QE-3 would likely set the road map for the next year or so for the world.
Wednesday, June 1, 2011
Chart of the Day
5600 has been key level many times, resistance and support and 200 EMA, expect some correction here.
Sunday, May 29, 2011
Technicals for the Week
Markets seem to have made a short term bottom at 5329.Lets look at what could be key levels in the coming weeks.
1. The Fall if completed from 5944 to 5329 would be one leg of a fresh unfolding down move. Retracement levels are placed at 5564, 5637 and 5709.
2. The 20 ema is at 5502 and 20 MA at 5490. Close above these levels key to close all shorts.
3. The 200 EMA at 5600 levels is first key target.
4. The Fall terminated before touching the lower Bollinger Band. Usually for a fall or rise to be completed it has to touch the upper or lower end though that is not a rule.
5. Fresh shorts on break of 5360.
6. If its a 3rd leg fall from 6339, first leg 6339-5177, second leg up 5177-5944. Third leg down from 5944 with targets of 4722.
7. The fall took around 22 days so if its retracement of the entire fall it could take about 8-12 days of rise.We have already completed 2-3 days, which means next week could be positive.
8.Gold is holding the 1500 levels and the dollar is weakening.
9. The G-Sec Rate for 10 year bond has reached 8.4 pc. Peak achieved was 9.55 % and we may be a quarter away from reaching it.
To sum up, long above 5502 if sustains and shorts below 5350. In between stay light.
1. The Fall if completed from 5944 to 5329 would be one leg of a fresh unfolding down move. Retracement levels are placed at 5564, 5637 and 5709.
2. The 20 ema is at 5502 and 20 MA at 5490. Close above these levels key to close all shorts.
3. The 200 EMA at 5600 levels is first key target.
4. The Fall terminated before touching the lower Bollinger Band. Usually for a fall or rise to be completed it has to touch the upper or lower end though that is not a rule.
5. Fresh shorts on break of 5360.
6. If its a 3rd leg fall from 6339, first leg 6339-5177, second leg up 5177-5944. Third leg down from 5944 with targets of 4722.
7. The fall took around 22 days so if its retracement of the entire fall it could take about 8-12 days of rise.We have already completed 2-3 days, which means next week could be positive.
8.Gold is holding the 1500 levels and the dollar is weakening.
9. The G-Sec Rate for 10 year bond has reached 8.4 pc. Peak achieved was 9.55 % and we may be a quarter away from reaching it.
To sum up, long above 5502 if sustains and shorts below 5350. In between stay light.
Sunday, May 22, 2011
200 Day Moving Average and 200 EMA: Market Behaviour
The 200 DMA is supposed to the dividing line between a Bear and a Bull Market. Let us take a look at how the markets have behaved ever since the Bull Run started in March 2009.
The Markets have traded below the 200 DMA 3 times in May 2010, Feb 2011 and now in May 2011. Prior to this, the markets bounced off the 200 DMA in Feb 2010.
1. Each time, the market goes below 200 DMA it seems to spend more time below it. First time in May 2010, it spent 6 days below it then criss-crossed for a couple of times for a day of 2. The low achieved was 4.2 pc below the 200 DMA.
2. The next time in Feb 2011, we spent about 40 days below the 200 DMA and the low was 8 pc below the 200 DMA.
3. This time round we have already spent 16 days below the 200 DMA and the low has been about 6.15 pc below the 200 DMA.
Now lets look at the 200 EMA.
1. In May 2010, we spent 1 day below the 200 EMA and the low recorded was 2.2 pc below the 200 EMA. In Feb 2011, we spent 46 days below 200 EMA and the low was 8 pc below the 200 EMA. This time in May 2011, we have spent 14 days below the 200 EMA and the low recorded has been about 4 pc below the 200 EMA.
2. Also, in Feb 2011, the index tried breached the 200 EMA failing 2 times and succeeding in the third attempt. We have already made 1 more attempt at 5605 and its likely we could have another go at the 200 EMA at 5615 before falling.
As the time has been going by, the index has been spending more and more time below the 200 DMA and 300 EMA indicating that the rally is weakening. This also, means the upside is capped at 5600 and at the downside we have the range 4800 to 5150 to be tested.
The Markets have traded below the 200 DMA 3 times in May 2010, Feb 2011 and now in May 2011. Prior to this, the markets bounced off the 200 DMA in Feb 2010.
1. Each time, the market goes below 200 DMA it seems to spend more time below it. First time in May 2010, it spent 6 days below it then criss-crossed for a couple of times for a day of 2. The low achieved was 4.2 pc below the 200 DMA.
2. The next time in Feb 2011, we spent about 40 days below the 200 DMA and the low was 8 pc below the 200 DMA.
3. This time round we have already spent 16 days below the 200 DMA and the low has been about 6.15 pc below the 200 DMA.
Now lets look at the 200 EMA.
1. In May 2010, we spent 1 day below the 200 EMA and the low recorded was 2.2 pc below the 200 EMA. In Feb 2011, we spent 46 days below 200 EMA and the low was 8 pc below the 200 EMA. This time in May 2011, we have spent 14 days below the 200 EMA and the low recorded has been about 4 pc below the 200 EMA.
2. Also, in Feb 2011, the index tried breached the 200 EMA failing 2 times and succeeding in the third attempt. We have already made 1 more attempt at 5605 and its likely we could have another go at the 200 EMA at 5615 before falling.
As the time has been going by, the index has been spending more and more time below the 200 DMA and 300 EMA indicating that the rally is weakening. This also, means the upside is capped at 5600 and at the downside we have the range 4800 to 5150 to be tested.
Saturday, May 21, 2011
Outlook for Indian Equities - A letter to Taran Marwah
Dear Mr Taran Marwah,
Good Evening.
I am an avid follower of the capital markets and keep myself abreast of all current developments either through the print media or the electronic media (primarily through NDTV PROFIT & CNBC-TV18). I am also
interested in reading articles on personal finance and investments in varied asset classes.
I have often read your e-mails with great interest whenever you post them online and have found them to be quite relevant and meaningful.
Coming back to equities, I have recently stumbled upon reviews by eminent analysts from HDFC Bank & Morgan Stanley who have predicted that the Sensex would touch 24,000 & 30,000 levels respectively within the next 12-18 months. I frankly fail to understand the rationale behind such optimism. Is this just a figment of their
imagination or are there any fundamentals/technicals to justify such high expectations?
My view is that the next few months would be a testing time for Indian equities and that expectations would have to be severely scaled down, keeping in mind the recent muted earnings of top organisations, continuous rate hikes by the RBI with more
rate hikes expected, inflation inching closer to 2 digits, squeeze on the margins of most companies across sectors, etc. Also, I recently came across a news report that within emerging economies, India was beginning to show signs of losing favour with global investors, who were now exploring better returns,particularly in Brazil, China, Mexico, etc.
Would appreciate if you could put forward your perspective on the outlook for Indian equities for FY 11-12 and what levels do you foreacast for the Sensex & Nifty by March'12.
Regards,
Sanil Sonalkar
Good Evening.
I am an avid follower of the capital markets and keep myself abreast of all current developments either through the print media or the electronic media (primarily through NDTV PROFIT & CNBC-TV18). I am also
interested in reading articles on personal finance and investments in varied asset classes.
I have often read your e-mails with great interest whenever you post them online and have found them to be quite relevant and meaningful.
Coming back to equities, I have recently stumbled upon reviews by eminent analysts from HDFC Bank & Morgan Stanley who have predicted that the Sensex would touch 24,000 & 30,000 levels respectively within the next 12-18 months. I frankly fail to understand the rationale behind such optimism. Is this just a figment of their
imagination or are there any fundamentals/technicals to justify such high expectations?
My view is that the next few months would be a testing time for Indian equities and that expectations would have to be severely scaled down, keeping in mind the recent muted earnings of top organisations, continuous rate hikes by the RBI with more
rate hikes expected, inflation inching closer to 2 digits, squeeze on the margins of most companies across sectors, etc. Also, I recently came across a news report that within emerging economies, India was beginning to show signs of losing favour with global investors, who were now exploring better returns,particularly in Brazil, China, Mexico, etc.
Would appreciate if you could put forward your perspective on the outlook for Indian equities for FY 11-12 and what levels do you foreacast for the Sensex & Nifty by March'12.
Regards,
Sanil Sonalkar
Friday, May 20, 2011
Crude Oil Presentation
Taran and I had done a study on the historical movement of crude oil prices and the path they are expected to take.
Please refer the path below to access the presentation.
https://groups.google.com/group/nav-files/browse_thread/thread/ddb3a7230421772e?hl=en-GB
Please refer the path below to access the presentation.
https://groups.google.com/group/nav-files/browse_thread/thread/ddb3a7230421772e?hl=en-GB
Thursday, May 19, 2011
Options for Hedging
Options are much misunderstood and much maligned. They are best used for hedging, and not as a gambling mechanism.
I have written a guest post on the same for Subhankar.
Continue Reading at:
http://investmentsfordummieslikeme.blogspot.com/2011/05/how-to-use-options-as-hedge-guest-post.html
I have written a guest post on the same for Subhankar.
Continue Reading at:
http://investmentsfordummieslikeme.blogspot.com/2011/05/how-to-use-options-as-hedge-guest-post.html
Sunday, May 15, 2011
Technicals for the Next Week
It was a sideways kind of week with the Nifty registering a fall of 0.1 pc. The kind of movement suggests that it is a pause before the continuation of the fall. Let us look at a few technical parameters.
1. 5476 is a key support level for this month. The Markets hit 5472 and then bounced back. Keep a close on 5472. If it sustains below this level, one ca go short.
2. 5624 is the 200 EMA and 5754 is the 200 DMA. Longs only above 5624.
3. The biggest sign that this is a new impulsive downtrend for me is that it took 9 sessions to fall from 5912 to 5444. Its taken 6 sessions to reach a high of 5605 and we have not even retraced 38 pc of the fall. This makes it clear to me that this is a pause before further fall.
4. The Bollinger Bands are opening up indicating a further fall. The support currently comes at 5393.
5. The various channels are marked on the chart. 5451 is a key support breaking which the multi-month channel gets broken. The height of the channel is about 500 points which gives us a target of 4900-4950 points.
Summary:
Longs on close above 5624. Shorts if sustains below 5472. In between go long at around 5510 with stop loss at 5472 and short at around 5600 with stop loss at 5624.
The range of about 130 points should break soon giving targets of 5750 or 5350 both key levels. One is the previous bottom and the other is the 200 MA. The Range for this expiry should 5350-5750.
1. 5476 is a key support level for this month. The Markets hit 5472 and then bounced back. Keep a close on 5472. If it sustains below this level, one ca go short.
2. 5624 is the 200 EMA and 5754 is the 200 DMA. Longs only above 5624.
3. The biggest sign that this is a new impulsive downtrend for me is that it took 9 sessions to fall from 5912 to 5444. Its taken 6 sessions to reach a high of 5605 and we have not even retraced 38 pc of the fall. This makes it clear to me that this is a pause before further fall.
4. The Bollinger Bands are opening up indicating a further fall. The support currently comes at 5393.
5. The various channels are marked on the chart. 5451 is a key support breaking which the multi-month channel gets broken. The height of the channel is about 500 points which gives us a target of 4900-4950 points.
Summary:
Longs on close above 5624. Shorts if sustains below 5472. In between go long at around 5510 with stop loss at 5472 and short at around 5600 with stop loss at 5624.
The range of about 130 points should break soon giving targets of 5750 or 5350 both key levels. One is the previous bottom and the other is the 200 MA. The Range for this expiry should 5350-5750.
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