Bull Markets Roll, Bear Markets Spike

There is an old saying that “bull markets roll, but bear markets spike.”

In a bull market, most investors are long-only. They are happy, The bull market thus “rolls” along, as more bullish investment capital flows into the market and positions are added to.

In a bear market the case is different. Very few people are ready to go short. So many people are angry. The result is a spiky profile where declines are interrupted by surprisingly vicious rallies of short duration.

These mini-rallies are made more vicious by the forced activity of “short covering,” in which bearish traders get “squeezed” out of their positions by the fighting spirit of the bulls.

Nifty update

The trend in Nifty is now changed to UP...yesterday it closed above 4950...which has made the trend up

Traders can look for a dip to enter and be long as long as Nifty remains above 4950

Attention Bears: UK's budget deficit same as Greece

At slightly more than 12 per cent of gross domestic product Britain's budget deficit is the same as Greece's.
Short sellers that have profited from the Euro are now taking huge bets on the pound, which is already down 8 percent this year against the dollar.

The entire story can be read here:

http://www.theglobeandmail.com/report-on-business/economy/short-sellers-take-aim-at-pound/article1486002/

Euro and hedge funds

Hedge funds are taking big bets for the crash of the Euro. We might be in the middle of something big. Like how the pound crashed in 1992 courtesy George Soros

The entire article can be read here:

http://online.wsj.com/article/SB10001424052748703795004575087741848074392.html?mod=rss_whats_news_us_business&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+wsj%2Fxml%2Frss%2F3_7014+%28WSJ.com%3A+US+Business%29&utm_content=Google+International

What US recovery?

Banking: lending is down which is bad. The FDIC is almost bankrupt. Who will bailout the FDIC?

Consumer confidence: The Conference Board numbers for February is 46 (around 100 is a good number). The present situation subindex fell to 19.4, the lowest level since February 1983.

Employment umbers: still very bad...jobless claims is almost 500,000

housing industry: mortgage applications for home purchases have just fallen to a 13-year low. New home sales in the U.S. fell to the lowest level on record in January. Freddie is still losing tonnes of money all backed by the government



The entire article can be read here:
http://seekingalpha.com/article/190665-recent-stats-indicate-u-s-economic-recovery-was-an-illusion?source=email

Managed futures gaining popularity

Managed futures as part of overall asset allocation is gaining popularity

A very good article can be read here:


http://www.nytimes.com/2010/02/27/your-money/27money.html

4950 resistance still holding on Nifty

Nifty is vey volatile these days...gap up one day followed by gap down the next day...VIX which is an indicator of fear is currently above 31...

4950 is still holding as resistance...my overall view is still bearish...a close for 2 consecutive days above 4950 would change my view to bullish

The next few days could be extremely volatile

US commercial loan crisis - time bomb waiting to explode

For all you bears waiting to get into action:

Half of the roughly $1.4-trillion (U.S.) worth of commercial loans coming due over the next four years are already "under water" and could trigger bank losses reaching as much as $300-billion per year, according to a Congressional oversight panel report released in February.

"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American," the 189-page report concluded.

"In the worst case scenario, hundreds more community and mid-sized banks could face insolvency ... Their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession."

America’s 8,100 banks hold about $1.5 trillion in commercial real estate (CRE) mortgages, all but $1 trillion of which must be refinanced in the next four years.

About 3,000 small banks will be disproportionately hard hit by the failed refinancing. These banks have what the Government calls “CRE concentration”, with CRE loans equal to at least 300 per cent of total capital.

The entire article can be found here:
http://www.globeinvestor.com/servlet/story/GAM.20100212.IBUSECONOMY12ART1937/GIStory/

http://business.timesonline.co.uk/tol/business/economics/article7023861.ece

Nifty breaks out of range

The Nifty has broken out of the trading range from 4750-4830 towards the upside

For the short term the trend is up though the overall bias is still downwards. If the Nifty sustains above 4950 for a few days then the overall trend might change to up again.

For the time being decide your horizon and trade accordingly. Volatility is very high which is a feature of bear markets. The markets will guide us in the next few days as to the direction it is going to take.

Are the FIIs making a mass exit?

FIIs have pulled out USD 2.7bn in the last 18 trading days from India
To put things in perspective they injected USD 17bn in 2009

So its quite a substantial part they have removed. Lets see if this trend continues over the next few trading days

Dubai in the spotlight again

Dubai debt concerns re-emerged Friday as the cost of protection against a default by the Persian Gulf emirate climbed to the highest level since November, according to data provider Markit.

The price of credit default swaps on Dubai government debt jumped to 630 basis points on Friday, up from 592 on Thursday, Markit data show. These CDS prices were last above the 630-point mark on Nov. 27, when they traded at 634 basis points.

The entire story can be found here:
http://www.marketwatch.com/story/dubai-debt-concern-grows-2010-02-12

Next week should be another interesting week

Who is going to bailout USA?

The European Central Bank is not permitted to provide direct assistance. Greece needs help from individual countries. Its quite possible that France and Germany will let Greece default. Those two countries, however, are the number one and two top foreign holders of Greek debt with $75 and $43 billion respectively, so this seems unlikely.

The situation is very complicated. If bigger countries bailout these smaller countries, who will bail them out when they need help as by helping the smaller countries they are weakening their own health? 7 states in USA are bankrupt, the FDIC is bankrupt and the UK has a similar sorry state.

Who is going to bailout USA?

In the short term, If Germany decides not to guarantee Greek debt, markets will probably crash. Positive news might cause a relief rally.

So expect volatility in the days ahead.

The great gold rush

If the downmove in the Dow materialises, gold and all asset classes will fall in tandem. In 2008, when the Dow and all global indices was crashing, gold fell from $936 on October 8th to $681. So be careful before piling into gold

Currently most indices are testing their 200 DMA. So the tussle around the Nifty 4750-4830 level continues. This should get resolved in the next few days. Let the market advise us where it is headed to in the short term.

The Big Fight at 4800

Bulls and bears are having an awesome fight at Nifty 4800 levels. The bears are not letting the Nifty cross 4800. Its an interesting and crucial battle.

Volatility has increased as demonstrated by the VIX. This is a critical part as the mood is now changing from bullish to bearish. The next few days are very interesting. Enjoy!

PIGS crisis just the biggening?

The sovereign default fears in the European countries is very small compared to what the real scenario is...7 states in the US are bankrupt...there is a limit to how much money can be printed by governments...ultimately there is going to be tightening of policies to bridge the deficit...which leads to deflation, crash of equity, commodities...and a rally in the Dollar Index

Back home the Nifty has broken 4700 on an intraday basis..let us see if it closes below 4700...

Analysis on China

The Shanghai Index closed on Feb 4th 2010 at 2995.
On 4 August 2009 it hit an intraday high of 3478
In October 2008 it was roughly 6100 levels

So the Shanghai Index appears to have had a top on 4 August 2009 and is currently heading downwards.

The BIG move for China happened in the months of Feb-July 2009...after that it has been just in distribution phase.

Looks like the bears have taken control firmly in China which appears to be a bubble like situation. The next few months should be very interesting

4800 needs to be broken to see 4500

A Nifty close below 4800 can make us see 4500....Market is looking weak and exhausted...All indicators are looking bearish...even on higher timeframes like weekly and monthly charts...generally weekly and monthly charts give fewer and better signals...although there is a slight lag...Everything in life has a tradeoff.

I think its a matter of time before we see 4500 and lower levels...this is a market to short on rallies rather than buy on dips...but then its all a game of probabilities...keep your stops and enjoy the ride if it materialises

Nifty not being able to break 4950

Nifty is not being able to break 4950 which acted as a key support earlier.

If Nifty goes above 5000 there will some serious short covering and we can see 5200-5300 very soon

If Nifty closes below 4800 there is huge downside possible.

Between 4800 and 4950 it is rangebound and can be dull for a few days. But then the best moves come after dull periods like this.

Trend Trading

Trend Trading is the science of measuring the direction of today’s trend, taking a position on that basis and then allowing Law of Inertia and probability favor the continuation of that trend for an unknown period of time into the future.

We do not have to worry whether the Nifty is going to go to 1000 or 10,000. It is similar to steering a ship in the direction of the prevailing wind. When the economic weather changes, we will change our course with it. We will not under any circumstances try to forecast the future time or place at which the wind will change.

Trend traders have a systematic plan. That plan includes knowing that they will not win every day, week, or month.

One question I always get from my subscribers is when they see 200 points open profits turn into say 50 points and me exit a trade. For example I go long in Nifty at 5000...Nifty goes to 5200...but my system generates an exit at 5050.

Now if I exit at 200 profit I will never see the big ones...which are the ones that actually make the year.

So trend trading is a game of patience and discipline.

Nifty still bearish - 4950 is key resistance

Nifty gapped up today near the 4950 levels and ended the day significantly in the red. 4950 is proving to be a key resistance. A close below 4800 will further reinforce the fact that the bears have taken control with 4500 as the next target.