Prediction time - Option Chain

Predicting the unpredictable - This was one of the main reasons I got hooked to stock Markets. Inspite of spending more than 1/4th of the day on phone I somehow manage to squeeze out time to analyze the markets.  I am not sure, why I love such things [markets not talking over phone ;-)]. In this post I will be covering my analysis on the "Option Chain" of Nifty Futures for the current month provided by NSE-India. 

From the Option Chain table I look for the following:

1. Maximum "Open Interest"[OI] for a "Call" - For the current series[December] I see the maximum OI for 6000 Call. 

2. Maximum OI for a "Put" - For the current series I see the maximum OI for 5600 Put. 

What are the possibilities of the markets direction?

-It is very likely that 5600 Put is being written. If the market movers have to benefit, Nifty has to fall close to 5600 or below 5600. This is logical because 5600 Put will have maximum value around this region.

If we consider 5600 region to be the base for this series, it is very likely that Nifty might close above 6000, because of the huge OI in 6000 Call.

 I feel people are buying 6000 Call as the market is falling and writing 5600 Put. Time will tell the future :-)

Happy Trading

-Sri

Is it the best time to invest?

Finally, the world markets decided to take a plunge from their new highs of the year 2010. I strongly believe this is a short term correction. After a sustained move-up it makes a lot of sense for a decent correction - nothing wrong with it :-).

From the Minifty Futures chart below: I see it is very unlikely that Nifty would fall below the 5730 level. A breach of the 61.8% retracement level would imply a change in the main trend that is UP [in a longer time frame]. Also the fact that there is a window around the 5650 ish level will act as a strong support. Even if these levels are breached, I would expect "very strong" pullbacks. Effectively providing you an oppurtunity to go long and again short.

For BNF, I am not sure what to consider as a base, so not using Fibonacci retracements. I hope the window again might act as a strong support. 

On the other hand, both NF and BNF are currently sitting at crucial support levels. Following are things that might pan out. 

1. Markets end the correction here and start the next leg of rally fuelled with the shorts closing for F&O closing on Thursday.

2. Markets continue to go down until the F&O closing this Thursday. 

3. EUR/USD seems to have had a pull back implying that USD is getting weaker, which further implies equities might bounce back. 

3. Next 4 days of trade will decide the market direction for the last month of the most spectacular year for the world equity markets. 

For investors, I would say this is a golden oppurtunity to invest in bluechip companies. I am of the opinion that we might never see the current stock prices until we hit the next global disaster. Be smart don't regret later :-). 

-Sri

Importance of USD - G19 + USA

US Fed announces to pump in $600 Billion, and all we get is just a day of rally. Every rise in the market is negated with enormous selling pressure. What's happening?

I thought of sharing the EUR/USD chart that I have been following for quite some time :-).

Chart of EUR/USD:

As you see in the chart, USD is having a rally [or the EUR is retracing]. With the Fed's move, wasn't USD supposed to get weaker?

My take on the events happening:

1. G20 [or rather G19 + USA] summit is pushing US to stop devaluing USD further. USD, is not just another currency. All the commodities [oil/gold/silver/metals etc] are traded in USD. With USD getting devalued, the commodities will get costlier, impacting export oriented countries. And the extra USD would also flow into these countries as investments and further increase the inflation. And yes there are a lot more problems :-).

2. The weakness in the market could be due to ongoing G20 Summit - No one's sure what will happen to USD :D.

3. If EUR/USD takes support at the 23.6% retracement level, and starts the rally again, we should expect the Stock markets around world to follow suit [Hopefully EUR doesn't get weaker due to some Euro Nation/Bank going bust ;-)].

4. If EUR/USD falls further, we should see a deeper correction in world markets. Another point from my experience is that "FII's" never invest when the markets are at highs, they pull it down [by inducing fresh shorts/ or exiting from ETFs] and then rally. If this were to happen, we could easily see 5800-6000 on Nifty very soon. 6000 puts have the highest OI[open interest] suggesting there is significant support through put writing that has happened.

5. However, the excess USD induced by Fed will definitely enter the emerging markets and we are sure of a rally. But, with the current situation not sure whether we will have a correction before a rally.

-Sri

An experiment.

I thought of sharing an idea that I got yesterday night - it is about finding the probable target for this ongoing "Sucker Rally". I am not worried about the results as it is just an experiment. 

We use Fibonacci retracements to find the support levels for price, after the market has had a rally. I thought why shouldn't I use the same for finding the target for an ongoing rally. The basis for this is very simple, "Price stops/consolidates at support levels, when in a downtrend". Similarly, "Price also stops/consolidates at resistance levels, when in an uptrend". So based on this fact, if we consider the last weeks consolidation as a 23% retracement from the top, we would have the Nifty top at 6450 [ish], BankNifty at 13300-13500[ish]. I believe its logical to provide a range rather than a fixed target. 

Following are the charts:

BankNifty:

Nifty:

Another interesting aspect I thought of sharing - Using the Elliot wave principle, I believe we are in the last phase of the rally for this intermediate uptrend, and a correction is imminent. Look at the "black zig-zag lines in the chart". 

Will the target be achieved?

1. FIIs are buying relentlessly. I have never seen such momentum in the last 1.75 years [since I started tracking the markets.].

2. Nifty should reach the target of 300 points in the next 2 weeks, if there are no major surprises in the world economy. 

3. The breakout on last Friday, has taken most of the indicators to deep overbought region - a bubble. 

4. Dow Jones, is very likely to hit 10,900 this week and continue to hit 11,250 in the next 2 weeks, before going for a correction. 

Why the target might not be achieved?

1. Nifty has to cross it's all time high of 6357 before reaching this target. A previous high is always a resistance. On the contrary, Nifty did not face any resistance at 5700/5900/6010/6170, so why at 6357 - this is a momentum rally. 

What might happen in October?

I expect Nifty to have a correction of 600-700 points from the highs - If you see the charts above, after "4" there is no price consolidations and hence no support levels [a free fall zone?]. I am assuming this might start just before the Coal India IPO. Correct relentlessly for 2/3 weeks and by Diwali, start the rally again, mimicking the Dow Jones. I will review the situation again next week, whether all the above predictions would still be valid. 

What should Investors do?

Investors should consider a time frame of few years. Nifty in all likelyhood will be much higher in the next 2/3 years. And hence stay away from these bubbles/sucker rallies and enter only after a correction has completed and the uptrend has been resumed. Try to get a Demat account :-) atleast 2 weeks ahead of Diwali and be prepared to invest. 

What should traders do?

Based on your strategy enter long/short, with a stoploss and try to be in the market always. 

Note:

I might be proved completely wrong by the markets, if you lose money following my suggestions - I will laugh at you :-). 

-Sri

Held at point blank!!!

Yes, pretty much held at point blank for predicting that the markets are to fall. I will give my explanations, why markets might fall - before that an example to prove that people see what they want to see.

Following were my predictions in my previous blogs:
1. Just when everyone was expecting a correction in the Indian/US markets, I told there would be a sucker rally, followed by a correction, which would likely start in the 3rd week or 4th week of September.
2. Just before US markets took off, I posted the charts as to what the US markets might likely do.

Everyone now is asking me why aren't the markets falling - You told markets will fall now!!!! If markets were to listen to what I would say, I would not be working as a software designer. Ohh, b/w I'm OK for constructive criticism but certainly not here for useless taunts :-).

I like to keep things short and to the point:
1. Knowing the direction of the market [the process of predicting the market] is like an "Open book exam". Just by having the text book next to you during the exam does not guarantee you >=95% marks. Just knowing the direction of the market is useless, unless you have a strategy to squeeze the maximum from the markets.

2. If anybody had entered during the sucker rally, they would have made hell lot of profit. When the whole world was worried about US double dip, I said Dow Jones might hit 10900, it is just 40 points away from this target - WHY AREN'T PEOPLE SEEING THESE THINGS :(.

3. A smart person can make money in markets irrespective of the market situation - and so does not have to enter on dips and sell at a higher price. The fact that experienced people in the market are against this is that it is the easiest way to loose money for new comers.

4. And at-last - I would be happy to be wrong a few times, it's a nice humbling experience. If I can learn something from each of my mistakes, I can live with the mistakes and it would be too arrogant of me to expect to be right always with markets.

OK, enough of egoistic talks, now to my reasons for the markets to fall:

1. Whenever the price touches the bollinger bands [I use "21" as the period], it either goes sideways, or hits the other side of the band.

2. Whenever there is a breakout/breakdown, we look for two things for a reversal in the daily charts. Firstly, a Doji and secondly a close below/above the previous bar. This is a signal of reversal. We have had a "Doji" on NF and BNF. Now waiting patiently for a close below any of the previous bars.

3. FIIs have a net buy of  17K+ crores - highest since 2006 [http://www.moneycontrol.com/stocks/marketstats/fii_dii_activity/index.php]. A similar thing happened last year - in september 2009, FIIs had a net buy of 13K+ crores. And the following month there was a fast and deep correction. A very high likelyhood this time. All those people who want to invest - this is the last oppurtunity until next January [2011] or April/May[2011].

4. FIIs are investing in the Exchange Traded Funds, which is usually bought by the hot money. This hot money is extremely liquid. It can go out "ANYTIME".

On the other hand markets might go sideways without correcting, make a new high and then correct sharply. Otherwise in all likelyhood we should resume the uptrend in late October or early November and rally until Jan/Feb before a pause. We have now entered a range of high volatility, an amazing time for intraday traders :-).

-Sri

Dow Jones keeps everyone guessing...

Dow Jones Industrial Average is giving a tough time for the chartists trying to predict the future of it's course. It is so close, negating a "Head and Shoulder" pattern - one of the strongest patterns. Dow Jones has had ~500 points rally so far in this month, which is historically the most bearish month. "Extremely" low trading volumes in the last few weeks could be attributed to this strange behaviour. On the other hand few analysts are suggesting, investors are waiting for the November elections to get over and only then we might get a decisive move in the US stock markets.

With just a few weeks ahead of the 4th quarter results, most companies would be trying their best to finish a strange year on a good note. Now to the charts.....

I know you guys will start wondering whether I can see only "Head & Shoulder" patterns :-). The pattern in the above chart gives a target of ~10,900 for Dow Jones.

Now to the "even" more interesting chart:

Just in case the previous pattern is successful then we would have "yet another" inverted head and shoulder pattern on the Dow Jones. And the target could be ~11,600 a new high since the recession started.

If all these patterns are to fructify, if there are no corrections in US will India have a correction - my answer would be "No". Indian stock market can be compared to a "beta stock" in the world market that outperforms the world in case of good news/bad news. But one thing for sure in case of Indian stock market is that the volatility is increasing and we might get a flash flood like correction and within no time get back to newer highs. A 10% correction within a week and then back to a newer high within the next few weeks - is quite a possibility.

If you are already invested in stocks - start booking part profits at new highs and re-enter on dips. You'll need a lot of patience - if you don't you'll regret :|.

If you are not in the market - the golden rule of investment is to enter on dips "not" when a stock is making a new high. Again restrain patience - if you don't like heart aches :-).

I am an "extremely" [yes I need an adverb, not redundant :-P] impatient guy - how am I in the stock market :-?. Well "Index futures" give an option to stay in the market "always" - long[buy and then sell] or short[sell and then buy], which further implies your investments work even when the markets are falling.

-Sri

Sucker rally :-?

Ahh, what a co-incidence :-) - I spoke about the sucker rally yesterday and we just got one started today :-D. Ohh between there was no rocket science with that prediction, look at the 30 min charts of NF and BNF below - self explanatory :-).

Just to add, we did break the 5500 level on NF quiet convincingly today as mentioned yesterday :-D. So the new target for NF is 5650/5700 and for BNF is 11400/11500. Will wait for these targets or a previous low [Pivot low] to be broken on the 30 mins chart to enter short until then enjoy the rally ....

-Sri

Time for a correction?

If you switch on to any business news channel [CNBC/ET/NDTV/Bloomberg etc] you will most definitely come across analysts suggesting that "a correction in the Indian markets" is coming soon. I am analyzing the same here to whatever extent I can.

Even before I start talking about the Nifty charts, an observation I would like to share - markets like history repeats itself.

The pull back [or the start of a new bull run] that started in March 2009 had a 38% retracement from the highs:

All the remaining 3 corrections we have had since then have been 23% retracements from the highs.






Another aspect to consider is the timing of these corrections. All the above corrections took place within a range 2.5/3.5 months. Now to the prediction part - we have made a new high on Nifty, we have rallied for close to 3.5 months. If we consider only the factors we had for the previous 3 corrections, we are more than due for a correction "Now". Look at the chart below as to where we might stop.

But compared to all other corrections we have had, I see one difference now - Not only experienced analysts, but even a "simple" trader/investor like me is able to predict this correction. Markets are supposed to be unpredictable - right? Well, just the fact that everyone is expecting a correction - markets will for sure do the opposite [I am trying my best to outsmart markets here ;-) ]. Here is what I expect - Markets most likely will make a new high i.e cross 5500 convincingly or atleast make an attempt and then out of no where a bloodbath is going to start :-). We are in a for a sucker rally in the next 2 weeks and probably a week or two before the F&O closing for September we should see Nifty cracking.

BankNifty has made a new high as predicted in my previous post :-) and topped at 11100 [+100 then what I had predicted]. It is trading at all time highs, which is a bullish sign. However, I doubt it's going to head any further after a 2000 point rally and I believe until the next "Big thing" happens for banks BNF should oscillate in this new 2000 point range.

Dow Jones is nicely bouncing from sub 10,000 levels which is going to be a tough resistance to break if at all it goes below that level. Dow Jones seems to have negated the H&S pattern, will confirm this only when 10750 is broken convincingly. If at all 10,750 is broken then forget any sort of correction in India :-).... we will be on our way to new highs [+6300] on Nifty for sure :-).

All in all, get ready to load your Shorts and Puts at the slightest of cracks until then enjoy the rally :-).

-Sri

Bullish pattern on Nifty and BankNifty.

Yes, I did expect outperformance in Indian stock markets compared to US and Europe, but certainly not to this extent. I see an "Inverted Head and Shoulder" pattern in Nifty[NF] and BankNifty[BNF].

BankNifty is the banking sectorial index on NSE. Whenever, there are two indices [NF and BNF in this case] forming the same pattern, the likely hood of those fructifying increase greatly. Look at the charts below: [beautiful aren't they :-P]

If the pattern is to give out it’s results, we should see NF topping at around 5800/5900 ish and BNF should top at around 10800/11000 ish. With the quarterly results around the corner we should see this happen in the next month or two.

However, as usual we have to be cautious - market remains an unpredictable beast. If NF were to go down below 5160 and BNF below 9230 then the inverted H&S pattern gets negated. Also the fact that US and Europe have completed the H&S pattern, it warrants us to be extra cautious. I’ll not be too worried about the bullishness in US unless Dow Jones crosses 10700. Another important point to take note of is that the China market has hardly had a bounce back like that of US/Europe, so it would take some time in determining where the global markets decide to go. Let’s hope the Indian markets rallies and then joins the US and Europe markets while going down ;-) [That would be ideal for fund managers].

Question: How to trade in a situation where the local markets are outperforming the global markets.

Answer:

1. You don’t trade the news or the global markets. Listen to what the charts have to say for the security you are trading. Do what the chart asks you to and try not to get influenced by anything else.

2. The best way to make the most of markets is to come up with a trading strategy that always keeps you in the market based on the hourly/daily/weekly chart timeframes.

Trust me #1 and #2 works :-).

-Sri

Head & Shoulder on Dow Jones

Finally, after all the emotional trauma, normalcy is reinstated. It is very true that time is the healer for almost everything.

Ok, now to the reason I am blogging – I see an “Head & Shoulder” pattern in the Dow Jones daily chart.

Though the left shoulder is a bit elongated, we can see that the neckline of the pattern is sloping downwards. This gives a target in the range 8600-8200 for Dow Jones. I still believe the biggest impact on the stock markets will be when the US fed increases the interest rates. Being an optimist, I hope the markets are considering this well in advance [markets are usually ahead of news :-)] ie. now.

Dow Jones went from 10,600 to 9800, then created a new high 11,250 and then created a new recent low 9700, and then again went back to 10,600 and now is at 9700. Now compare this with Indian stock market, Nifty went from 5300 to 4800, then went to 5400 and then to 4700 and again back to 5300 and now it is at 5200.

US, Europe, China are at their lows of 2010 [15%, 17%, 30% down respectively from their recent highs], which is not the case with India. As I had predicted, Indian markets are going to rally after the monsoon news, they did :-). But how long is India going to be decoupled from the world markets – I believe not for long. If the above mentioned head & shoulder pattern in Dow Jones fructifies I am sure we will follow and could expect levels around 4600 for Nifty.

All in all it makes me believe, the chances for a double dip recovery are very high, though the dip we are going to get now may not be as low as that of 2008’s.

Ohh between, I have been gyming very hard, also going to my swimming classes regularly. Recently started boxing training at the gym :-). Boxing burns more calories than the cardio workout. Even with such regular and rigorous workout I am unable to reduce 1kg per week. So, I have to reduce my target for August 2^nd drastically. I am hoping to cut atleast 5-6 kgs by then.

-Sri

Six packs Sridhara - Goal setting, planning, execution, tracking and risks.

After a long time, took a day off. I had loads of free time today, which is why this blog is getting updated ;-). Our family astrologer, recently [on May 30th] suggested few graha-shanthis to be done based on my horoscope. And because of things that happened recently, my parents wanted to get this done asap. Among, Yajna/homa, wearing a gem stone and meditation/japa – homa, is the most effective way of suppressing the negative effects of planets on us.

The more important thing for today is the spreadsheet that I prepared here for tracking my weight, exercise, reps, time spent, calories burnt etc. When I say something, I would like to stick to it [I am a Leo :-) ]. I did not say “Six packs Sridhara” just because it rhymes well [though I am yet to find a name that rhymes better :-P], I will try my best to get it. Having worked with quite a few good managers, I believe understanding the problem is half the problem solved. Once the problem is identified and understood, we will have to next plan how we go about solving it with continuous tracking.

I got enrolled for swimming at “Chairman’s club” [Sahakaranagar] yesterday. I am already a member at Talwalkars. I will get a personal trainer at Talwalkars from July 1^st. I will use the spreadsheet for tracking my progress. The next thing is identifying a goal. Offcourse, I have said I will get “six packs”. But, to have the same “level” of motivation for more than 2 weeks is extremely difficult. So, the way around this problem is to have short term goals. One such short term goal is to get rid off atleast 10kgs by August 2^nd, 2010, which is 47 days from today. As my friend rightly pointed out it’s a “do or die” situation for me. If ever in my life I should be 20kgs lesser, its in the next 3 months.

Being an aspiring manager and a serious investor, I cannot forget another important aspect :-P “Risks”. Yes, I am assuming I will be fit and healthy, will not be travelling, or stuck in evening/late night conf calls or there will not be any other unforeseen difficulties that could affect my schedule.

On the other hand, I am not sorry for my current state – I love food, and my current weight proves, the extent to which I have enjoyed it :-). There will be no change in my love towards food :-P.

Wish me luck :-)

-Sri

Shuruvaitu ninna preethi huDukaaTa :-)

For a change, not writing about the stock markets ;-). Circumstances beyond my control, forced me to listen to this song, and then pay close attention to the lyrics. At the end of it, I am happy. I am happy to know there is such a wonderful song in Kannada.

The song is "Shuruvayitu ninna preethi huDukaTa" from the movie Swayamvara. Music is by Manikanth Kadri, this guy is just too good :-). Lyrics for the song is written by Tushar Ranganath. I would rate this as the best song of the year so far :-).

You can listen to the song here.[clicking on the link, will load the song in your default .rm player]. And for those interested in the beautiful lyrics:

shuruvaitu ninna preethi huDukaaTa,

edeyalli eruperu usiraTa,

digilu tolagutilla, hrydaya malagutilla, kanasu karagutilla,

neenillade naane illa

shuruvaitu ninna preethi huDukaaTa,

edeyalli eruperu usiraTa,

ninakanda ondina, bayalaithu mundina,

apaghaata ago hunnara

nenakka nantra pariNama beekara

aaarambha saavina sweekara

ninna hinde maLege modalu gudugo moDa naa

ninna munde nudio badalu nadugo muDa na

ba preethi na kalisu e premi na uLisu

ee baLige ne beLaka harise

shuruvaitu ninna preethi huDukaaTa,

Edeyalli eruperu usiraTa,

ne nanna palige varavalla shapave

ninida mukthi nanagilla

ne nondu preethiya madidarada khailye,

gunavago daari gotilla

saddeiradee seleva suLiye ninna guLi kenne

tappe irade sereyade na ninolage henne

ba shikshe na tiLisu, nanna anumanaa aLisu

nana varise, avarisega harase...

shuruvaitu ninna preethi huDukaaTa,

Edeyalli eruperu usiraTa,

digilu tolagutilla, hrydaya malagutilla, kanasu karagutilla,

neenillade naane illa

shuruvaitu ninna preethi huDukaaTa,

Edeyalli eruperu usiraTa,

Offcourse, the italicized lines are my favorite one's :-).

-Sri

StopLoss: Expecting the unexpected with certainty.

Time to write about my favorite topic something that has made me a better person. Being an "Optimist", I am forced to think/imagine about only good things. In an ideal world, you don't always end up with good things. Life is interesting because you win sometimes and lose sometimes. Those who can learn something every time they lose keep increasing their chances of enjoying good things. Ok enough of philosophy!!!

Now if we have to use the same logic in Stock markets, it would be as follows: If you think that you will "Only" make profits in stock markets i have two words - "Dream On". Stock markets are an unpredictable beast. Like i have been saying in my earlier posts, it's all about preserving your capital when you are trading/investing. So how do you limit your losses? Or, put a stop to your losses?

You have to first come up with a strategy for trading/investing. This should define when you enter a trade, when you exit out of the trade. Ideally, the strategy is to first assume that the markets "WILL" go against your trade. Ok, if you did exit out of the trade, you again wait patiently for the next entry. You might be thrown around like this for some time, before the market starts trending in one direction or trends enough to give profits between your entries and exits. The exit level that you define is the StopLoss. If you ever want to invest in Stock Markets, never ever do so without understanding "StopLoss".

The same analogy in real life, does wonders :). Think of all factors that can go against you, before you start anything; you will definitely be better prepared for any unexpected challenges ;-).

-Sri

Staring at 61% retracement level.

I am wondering if the the unlimited soft-drink refills at Taco-Bell [Mantri Square] had anything to do with my viral fever + cold + cough. Last few days have been terrible - both [my] health and markets :).

Tomorrow is the F&O[Futures and Options] closing [last thursday of the month.]. We saw a huge sell-off this month from Nifty ~5400 to now 4917. Somehow it doesn't seem like the market is going up because of short covering. Even on a day like today [Nifty ended +2.3%] FII had a net trade of -166 cr. I have not seen a single day in the last 2 weeks with +ve net trade from the FII's. Seeing the way rupee has lost ground, now ~47[for $1], money seems to be going out of India.

With all the problems in Europe, it should be a great time to invest in India. And there have been a lot of supporting developments too, for example: Government making 67K cr from 3G spectrum bidding [+ve for GDP and -ve for Telecom[how are these guys going to pay back :-?]], Ambani brothers truce, Monsoon's almost perfect [yet to be out]. Also the strong quarterly results of the Indian companies makes me believe this is an excellent opportunity to invest atleast 1/3rd of the investment amount.

I believe Banking is very important sector of Nifty. If this sector moves, it will carry with it a lot of other sectors.

From the chart above, it seems that BNF has taken support at the 61.8% level from the Feb 2010 lows. We will have to wait and watch the effect of the "Triple top"[with the base at 38.2% retracement level] as well, which has a target of ~8600 levels.

I hope we will not have to see BNF below ~8600 and NF below ~4700[23% retracement from 2009 lows]. If it does, I have no idea of the next targets. We will have to just wait for the markets to show the direction.

-Sri

Nifty consolidates.

I am not sure how many of you are observing what Dow Jones and Nifty are doing last 3 days. Dow Jones, goes past 10900 and falls sharply, and Nifty goes past 5200 and falls sharply.

So what's happening?
It looks it is a place for profit booking for people who had been long at lower levels.

Ok, so if people are selling - Why markets are not going down?
There might be no new shorts getting created, and there might be a good number of people adding onto their long positions as and when they see minor dips and few opening new long positions on these dips.

If you look at the beautiful chart below, you'll understand what could be the next course of action for Nifty.

Nifty is in a wonderful channel. While it moves in this channel it keeps making new "higher highs" and "higher lows". In all probability last weeks 5000 was a a new "higher low" and it seems to be heading up to hit the roof of the channel. So a target of 5500/5800 is easily on cards, unless we go down breaking the 5000 level.

Ok, now lets look at the medium term perspective of Nifty. Below is a beautiful "Inverted Head and Shoulder" pattern of Nifty with neckline at 5230, head at 2500.


In the next 1 to 2 years, we should have Nifty above 7000.... and Sensex above 24000, unless for some extraordinary situation, Nifty goes below the left shoulder, the pattern will be negated.

How do you know when to invest?
1. You can never predict the exact bottom nor the exact top to buy or sell a stock, if you do - you are "God".
2. Invest with money that you can afford to lose or you dont need it in the near future.
3. Invest in small amounts, whenever there is a dip. And when you invest, religiously decide a level below/above which you are ready to book your loss/profits.

Investing in stock markets is not about making money, it's about preserving your capital - day after day, trade after trade.

-Sri

Now that's some PullBack.

After yesterday's post, realized something very important. Whenever we make an attempt predicting the market we "Should" consider both sides of the trade - In yesterdays' post there was nothing mentioned about a pullback and today we got the strongest pullback of the year so far :).

Let's look at the hourly chart for Nifty futures below:


Nifty has retraced 50% from it's low's and I would go bullish only if the 61.8% level of 5230 is crossed.

However if we look at BankNifty futures [BNF] below:

BNF has clearly closed above the 61.8% retracement level. It's shouting clear and loud that it does not like going down any further. I would have had preferred better volumes though.

Factors to consider further:

1. We are seeing "Extreme" volatility in the entire world markets. Trading thumb rule says - "When you dont know the trend, reduce your positions or stay out of the market". Preserving your capital is utmost priority.

2. With #1 in mind, let's look at a few positives - there seems to be some FII buying atlast. EU and IMF together have agreed to release $1Tr to solve the Debt crisis. NF has closed above 50% retracement level. BNF has closed above 61.8% retracement level. It's the Large caps that lead the rally today - which is a good sign. Dow is trading at +3.5% when i write this.

3. On the other hand, this could easily be "just" a pull back and we might see more downside in the nearterm. Because we have gone down so ferociously, the pullback could be a similar one.

How do we trade in such a market?
If you observe the 5 mins or the 15 mins charts carefully, you will see how well the market is trending both ways [long and short], inspite of gap up/down. Follow the trend, have strict stop losses, and book profits at support/resistances and minimize your carry over positions.

-Sri

Fibonacci the Man.

After procrastinating for a really long time, I am here finally updating my blog. I would like to start off with my analysis for the Indian stock markets.

Before I get into the prediction, a word of caution for readers. In trading, we should always make an attempt to predict the market, however this process is just 25% of our job. Most of the times Markets don't move as we have predicted. So the key to be successful in stock markets is to be highly flexible and reactive instead of being rigid - in the sense, if the market goes against your prediction be ready to go with the market and stop fighting with it :).

Analysis of Nifty:

Above you can find the daily chart of Minifty. I extensively use Fibonacci retracements for predicting the Nifty levels and I feel Fibonacci retracements works pretty well. If 61.8% level of 4950 range[+/- 20] is breached, I would look in to the weekly chart of Nifty below.

From the above chart, the likely stop for this downfall could be 23.6% retracement level which is 4745 range. Nifty has a habit of retracing to 23.6% before continuing the trend [which is upward in this case].

Reasons why I believe the markets are going to only get stronger [Until US Fed increases interest rates]:

1. Between Nifty 5400 and 6400 there is hardly any resistance area. So to cross the 5400 level we need a lot of good news and confirmation that most of companies are beating their earnings estimates [most of the companies revenue is already above 2007 market high levels].

2. Markets go up only when FII's invest. FII's never buy at higher levels. Their usual tactic is to "Short" the market at higher levels, get it down and buy at lower levels - precisely what's happening now.

3. If the monsoon is going to be at the right time, from this May F&O closing, you will see huge inflow of FII money into India, creating a huge rally in equities. Monsoon news impacts - Banking, Autos, Consumer durables, Reality, Infra, Fertilizers and many more sectors. However the IT stocks and export oriented sectors might take a beating because of rupee appreciation.

So, this is the prediction, let's see what surprises market has in for us :).

-Sri