Absolute return vs Benchmarking

An absolute return trading strategy is one which attempts to make the most money possible without being limited to a comparison to a typical index such as the Nifty, Dow etc.

Relative return managers are measured how they perform relative to some pre-determined benchmark like an Index.

In my opinion, benchmarking severely restricts a Portfolio Manager. You are a part of a herd and that is what we don't want to be a part of.

Is Dubai the next bubble to go bust?

Dubai is on the verge of defaulting on its 50 billion pound debt. This could be the latest bubble and trigger off the next down leg in the market.

http://www.thefirstpost.co.uk/56620,business,is-dubai-about-to-default-on-its-50bn-debt

All around we are surrounded by bubbles. Gold, crude oil, stocks. When the next leg of the bear market gets underway it is going to be a bloodbath.

Wall Street's Naked Swindle

An interesing story on how somebody with insider information at the highest level on the Bear Sterns collapse made billions using put options

http://www.rollingstone.com/politics/story/30481512/wall

DOW at 50% retracement of fall from 2007

The Dow and the S&P 500 having retraced 50% of their bear market declines and are testing major down trendlines drawn over 2007/2008 peaks.

Société Générale tells clients how to prepare for potential 'global collapse'

http://www.telegraph.co.uk/finance/economics/6599281/Societe-Generale-tells-clients-how-to-prepare-for-global-collapse.html

What is a bear market?

Anyone who invested in stocks in mid-1929 in US and held onto them would have to wait for almost his entire life before getting back to even.

Most people have only seen bull markets in the last 30-40 years and hence the bullish bias in analysts.

A prolonged bear market can be brutal and destroy a person's lifetime of investments. Today nobody can say with 100% certainty whether the current rally is a new bull amrket or a bear market rally. The nifty can be testing 2200 soon or could be touching 7000 also. We should be ready for either scenario.


All asset allocation decisions should include a strategy to profit fom falling markets.

Volatility - good or bad

It is not easy to develop a trading model that is not volatile and also gives high returns. Volatility is what creates the high returns investors want from the market in the first place. Investors become so frightened by viewing peaks and drawdowns. In systematic trading with a positive edge big swings in equity are very much anticipated and do not signal a loss of control.

Trend following models have 2 requirements: The need to preserve capital during losing periods so you can stay in the game until a winning period and the need to preserve psychological fortitude to keep playing.

Nifty trend is UP..again!

The Nifty trend is up...again....after a V shaped recovery from 4550 levels

So is it different this time? Will the Nifty continue going up without correcting significantly?

The more long lasting the trend, the more violent the end. The trend is your friend until it ends. And they ALWAYS do.

However the trend is UP now and we must respect the trend. As long as the Nifty remains above 4900 it is safe to be long.

Asset Bubbles

Central Banks worldover are stimulating the economy by printing large sums of money. That is the reason all asset prices are going up like a bubble - Gold, DOW, Emerging market equities etc. What happens to a bubble when you stop inflating it? It deflates

Someday that will happen

Back to the Nifty...We have retraced 61.8% of the fall from 5182 to 4539. So we might find some weakness for the next few days. Let's see.

120 bank failures in USA so far in 2009

5 more banks failed on Friday bringing the total to 120. The entire story can be read here:

http://www.marketwatch.com/story/another-bank-fails-in-georgia-2009-11-06?siteid=rss&rss=1


We are in the middle of the biggest recession since 1929 and what happens in the future should make 1929 look like a walk in the park. Once the current bear market rally is over in the US, the DOW should have a nice journey downwards. A jouney that will be fast and ferociious.

Patience and Discipline - key traits for trading

Jesse Livermore:-
"The reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do. That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight."

What causes a market to go down?

A stock needs buying (for whatever reason - fundamentals, technicals, hedging, speculation) for it to go up

When the buying stops( for whatever reason) it falls. And it falls much faster than it takes to rise. This is what is happening now.

This cycle keeps repeating.

Nifty targets for retracement

Nifty has completed its wave 5 up peaking at 5170 levels

Target for wave down is 3916/3707/3363

Short term risk of a sharp sell-off in the coming weeks is extremely high

Another one bites the dust

CIT bankruptcy could weaken sentiments. Are we seeing a Lehman type scenario here where there was a huge crash after Lehman went bankrupt.

http://www.bloomberg.com/apps/news?pid=20601087&sid=awJj2p2GTk.I&pos=1

VIX points to increased volatility ahead

Fasten your seatbelts. CBOE Volatility Index has biggest percentage jump in a year

http://www.reuters.com/article/marketsNews/idCNN3043425420091030?rpc=44

What is VIX?

VIX is the ticker symbol for the Chicago Board Options Exchange Volatility Index, a popular measure of the implied volatility of S&P 500 index options. A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from this volatility by selling options. Often referred to as the fear index, it represents one measure of the market's expectation of volatility over the next 30 day period.

http://www.cboe.com/micro/VIX/pricecharts.aspx

http://www.indexindicators.com/charts/sp500-vs-vix-5d-sma-params-3y-x-x/