Sovereign Defaults and CDS

Keep a close eye on the CDS rates of Greece, Dubai and Portugal

Credit default swaps (CDS) are insurance policies that pay investors in case there is a default.

Sovereign default like the fear that arose in Dubai could be the next trigger in the bear market that is likely in 2010.

China is a leading indicator of a market crash

China fell 73% from a peak in October 2007 to a low in October 2008. After that it has retraced 40% approximately.

China shares topped before US and India in October 2007, bottomed before US and India in October 2008. So there is a very high probaility that China will lead the next leg down which seems to be underway.

So all eyes on Shanghai!

Nifty target of 3800 if downmove materialises

If this downmove is to materialise the next Nifty support is at 4800, then 4500 with a target of 3800

MACD Divergence on Nifty

Divergence in daily MACD and Nifty Futures is a strong early warning sign of a reversal in trend

Nifty close below 4950 very bearish

Nifty has broken below the trendline which contained the upmove from March 2009 lows of 2800 levels.

Trendlines do work. Notice how a break above the channel in end March signalled the end of the downmove and the start of an upmove as indicated in the chart.

Nifty closing below 4950 is very bearish.

Trading Idea: Short the Nifty if it goes below 4950 and keep 4950 as the initial SL.SL can be trailed aftersome time depending on how the market moves.

Possible start of correction - anniversary of Jan 2008 crash

Nifty could be starting the correction of the rally which started from March 2009. A close below 4950 would further reinforce this bearish outlook. Please exit all longs in stocks and mutual funds as 3500-3800 is the target of this downmove.

A disclaimer: Nifty could rebound sharply and once again go upwards above the 5000 mark as has happened 3-4 times in the past. As an investor would you like to risk last 9 months gains for some limited potential upside? The choice is yours.

For traders keep your stops and enjoy the downswing if it deepens.

A big coincidence is we are now celebrating the 2nd anniversary of the Jan 2008 crash. What an apt time for the bears to take grip again!

Nifty continues uptrend

Nifty continues its uptrend. Until the market is bearish it is bullish. So we have to respect the trend. Although this might be the final leg of the up move.

All investors are bullish now. This is the clearest sign of a major correction on the horizon.

A close below 5200 for a few days could signal the downmove. Till then stay long. Or be wrong!

Decade of negative returns in US

While the media is now proclaiming 2010 to be a bull run for the S&P, it is wothwhile to consider how buy-and-hold worked out for investors in US:

The Dow ended 9% in the red, the S&P 500 - 24%, and the NASDAQ Composite - 44%.

If you were to learn just one thing from this blog remember these golden word:

" When everybody arond you is bullish exit all longs and prepare to go short.
When everybody is bearish, exit all shorts and build up long positions"

Investors in India are very bullish and I think the long term bull picture is intact in India for the next 5-6 years. But when things turn down it won't take long to erase the gains made over the last many years. If one follows the above golden rule one can save oneself from a lot of financial carnage.