Return of the bears!

Todays breakdown from the trading range of the last 2 weeks has important ramifications:

1) Nifty has broken below 34 day EMA. If this hold this could be bearish
2) Nifty had formed a head-and-shoulder pattern and it has broken down. The target could be 3600 levels
3) If we break the low of 26 may - 4090 then this could further reinforce the bear market. The gap that was created by the gap-up on 18 May looms ahead.
4) There is a global sell-off happening

Elliot wave enthusiasts are talking of wave 3 of 3 which is the most brutal.

This could prove to be the end of one hell of a bear market rally. We seem to be back in bear-land. Be prepared to make money by shorting!

Nifty has support at 4100

Nifty today touched a low of 4155 before bouncing back....It has significant support at 4100....Below 4100 it could retest the lows before the gap up happened on 19 May i.e. go down to the 3600 levels..

Strange phenomenon

In rising (bull) markets, people are hoping for a correction because they didn't get the change to buy.

In falling (bear) markets, peope are hoping for the market to rise because they didn't get the chance to sell.

As I write this article the Nifty Futures is trading at 4669.

Most people are nodding wisely and saying the market will correct. What if it continues to 6000? These people will eventually jump on only to find the market fall after they have jumped on. This cycle will keep repeating itself.

Nifty trading - 2009 performance so far

Results of Nifty trading in 2009 using short term high probability momentum trading based on Technical Analysis:

January 2009 - 14.8%
February 2009 - 0.6%
March 2009 - 4.8%
April 2009 - 22.1%
May 2009 - 12.6%

2009 YTD - 54.9%

Nifty continues its upward momentum

Nifty Futures is in an uptrend, closing the day at 3652. This uptrend started on 20 March when Nifty was 2768. Is this a bear rally? Not an easy quetion. Nifty faces huge support at 3200. If it breaks 3200 it will be a downtrend. Obviously this 3200 figure will change with time.

This recent rally reinforces the need for a stop loss. All the traders who were short on the market without stops are now facing margin calls and still hoping for a test of 2200. Only time will tell if that will happen but the message is "protect your capital". Keep your stops in place.

Nifty to test 3500

Nifty has been in a trading range from 3300 to 3500 for the past 2 weeks. Today will be a day to see if the 3500 resistamce holds or there is a dip. If 3500 breaks then it will be a continuation of the momentum which is UP now.

Nifty to gap down today

US and European shares have fallen sharply after the biggest bank in the US reported a big increase in the amount it needed to cover bad debt.

http://news.bbc.co.uk/1/hi/business/8009280.stm

The news on the street is as follows:

The entire U.S. banking system is in a state of utter chaos! Among what we’re hearing:

16 of the biggest 19 banks are virtually insolvent


If just two of those banks go under, the FDIC is finished


The crisis is much bigger than anyone has admitted thus far — with upwards of $5 trillion at risk!

The recent rally in the Nifty may be just a bear rally and the momentum may change from today. Interesting times and high volatility ahead!

Nifty in an intermediate uptrend

The Nifty on Thursday has closed above its 34 day Moving average. The intermediate trend is up. This could change but as of now the trend is upwards and positional traders should trade with the trend.

Whether this is a bear rally or bull move time will tell and these discussions are best left to the "experts" on TV.

Ours is not to reason why
Ours is just to trade...let other cry

The bear market we are in has completely destroyed the long-held belief that you can “buy and hold” your way to real wealth. It has become a short-term trading market, and those investors who understand that… and can act on it… will have a chance to prosper this year.

News that could make Nifty retest 2200

US threatens bankruptcy for GM, Chrysler. The entire article can be read here.

http://online.wsj.com/article/SB123845591244871499.html#mod=rss_whats_news_us_business

The Nifty is currently in a short term downtrend. If it breaks 2900 it could go much lower.

US markets rally

the S&P500 rose 7 percent, reacting to a new bank rescue plan.

http://www.ft.com/cms/s/0/7e0a2e32-17a7-11de-8c9d-0000779fd2ac.html

Back home, the Nifty has already rallied significantly in the last 10 days. There is significant resistance at the 3000 level. It will be interesting to see if it holds.

The toughest part of trading

The toughest part of trading is controlling one's emotions and being disciplined. If one is constantly wondering whether to buy or once in a trade whether to sell then it is not sytematic trading. It is random. It is like entering a casino and playing one round of black jack and then going to the next slot machine and trying one's luck there. Blowing up one's precious capital is guaranteed- its a matter of when.

How does one conquer one's emotions - trading a systematic plan. Have clear rules which are not written but carved in stone. The rules should be like this

Go Long: Condition 1
Stop Loss: Condition 2
Exit: Condition 3

Go Short: Condition 4
Stop Loss: Condition 5
Exit: Condition 6

Position Sizing/Money management: Condition 7

Such a system needs to be back tested, forward tested and traded live to build confidence.

Once one develops such a system the comfort level is immense. Trading will be more stress free than relaxing on the beach.

Happy trading!!

Nifty extremely bearish

The Nifty is extremely bearish now...all indicators are pointing downwards and the current momentum is down...Initiate or stay short!

Nifty breaks out of trading range

The Nifty broke out of the trading range at 14:05 today...2875 had proved to be resistance for the last 4 weeks...Short term trend is up now...

Fall in love with the Nifty

Barclays has jumped 73% yesterday
http://www.reuters.com/article/marketsNews/idCALQ63846120090126?rpc=44
How does one deal with this kind of volatility?
1) Be real time in the market....EOD charts don't work...trading is a full time job
2)Avoid stock specific risk by trading in the Nifty. Stock movements tend to cyclical, news driven or rangebound for considerable periods of time.

Some features of Nifty:
1) Very very very liquid...daily volumes in Nifty are 3 times ALL other stocks put together
2)Daily movement capped at 10%...which anyways is extremely rare
3) Trending for a large part of the time...some stocks are trending...others are stagnant...but Nifty always gives you the moves...long or short
4) Index is the weighted average of the 50 most liquid names in India...so well diversified anyways
5) All FIIs and Mutual funds have an exposure on index and index stocks
6) You can play both sides of the market and profit from rallies as well as corrections

Start trading in the Nifty...professionally and not speculation...Nifty main rab dikhne lagega!

Bank Nifty

Am short on Bank Nifty Futures at 4550...it is currently at 4082...for those having a bearish view on Banks (I am sure there are some bravehearts who are still bullish) the Bank Nifty Futures provides a convenient way of gaining from the fall while avoiding stock specific risk.

A move from 4500 to 4000 levels is a 10% fall on an unleveraged investment. Which is amazing for a 5-10 period horizon. The Bank Nifty is a very trending index and once can get these moves (up and down, though its always safer to trade in the direction of the trend) quite frequently on this index.

The momentum in Bank Nifty is extremely bearish. There is still scope to ride the downward trend.

As always keep lot sizes under control and stop losses in place.

Goodbye RBS

Bad scene on the banking front
http://finance.yahoo.com/news/RBS-expects-fullyear-loss-up-apf-14097594.html
RBS shares are battered from 300 pence to 13 pence...
Keep an eye for shorts on individual banks or Bank Nifty index in India as a similar story should/might unfold here....as usual keep lot sizes low and stop losses in place....
Stories unfolding now like Lehman, Satyam, RBS, Citi, Unitech are a clarion call to people of the buy-and-hold long term investor mentality.....who consider trading "risky".....keep your leverage under control and stops in place....and let the 95% people with investor mentality transfer all their wealth to the 5% with trading mentality...