The trend is DOWN

Imagine yourself running northwards. Suddenly you change your mind and want to run in the opposite diection. For that you slow down a bit, come to a halt and then turn and start running southwards. Gradually you build up speed till u reach your desired speed of running.

The market behaves in a similar manner. Till now it was heading higher and higher. But the momentum was waning. There were many signs of the market getting tired. It has now started heading southwards.

Will it continue southwards? It has a high probability of heading southwards all the way down to 4000/3600. This could be the correction I have been anticipating because retail had turned bullish inally. But the market might change its mind and start heading upwards again.

Keep a stop loss and trade short. There could be a lot of money waiting for you in the days ahead.

Nifty to continue uptrend if goes above 4590

Thursday and Friday's decline in the Nifty appears to be a pullback. The trend is currently UP. If the Nifty crosses 4590 on the upside the uptrend will be confirmed and traders can inititate fresh longs. A break over 4730 which the Nifty has tested thrice and failed in the past will result in a massive short covering and taking the Nifty to new highs.

This is the ideal scenario on the upside.

If the Nifty moves sideways and continues to go down, failing to cross 4590, we might see some downwards momentum.

Overall, the trend in Nifty is UP over the medium and longer horizons. The DOW is bearish over the longer horizon. While a major correction in the DOW or Asian markets will always result in the Nifty correcting short term, at some point the Nifty is going to decouple from the DOW and other global markets and continue its upward trajectory.

A few trending stocks make all the market's gains

Testing on historical data across stocks in Sensex, Nifty, dow, FTSE has proved the following:

1)Most stocks (about 70%) underperform the Index during the course of their lifetime.

2) A small subset produces all of the markets total gains.

This is because losses cannot be greater than -100% but returns can be far greater than +100%.

Every investor in the market feels he can outperform the market. Please analyse your portfolio and see the overall CAGR (compounded annual growth rate) from the time you FIRST started investing till date. You will be very lucky if it is more than 7-8%. It is probably better to put money in a FD. or switch to momentum based trading if you fancy 50% plus a year.

Treat the market as thy friend and not thy enemy

This is to all those who were short on the market before the Nifty hit the circut on 18 May 2009....short covering further propelled the Nifty to higher highs. As of 1 June close, the Nifty is at 4549. Those who were short have lost substantial amount of their capital and many have got wiped out...once again.

The current momentum is up both in the short and intermediate time frame.

Listen to what the market is saying. Elliott wave enthusiasts are predicting the Sensex will touch 100,000 in 15 years. Retail investors have once again got interested in the market. FIIs are pumping in money again.

Whether such a scenario of Sensex 100,000 pans out or not, try and FOLLOW the market rather than PREDICT or OUTSMART it. Buy-and-hold doesn't work as timing the market is impossible. THE CAGR (Compounded Annual growth rate) for a buy-and-hold strategy in most cases works out to be less than a Fixed Deposit.

The Nifty started at a base level of 1000 in 1995 and is currently at 4000. The CAGR for this works out to be around 10% before taxes. Can you outsmart the market and make more than 10% CAGR by following buy-and-hold strategy? If yes maybe Warren Buffet needs your help cause he too is facing problems with this strategy.

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 extremely bearish

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

Timeframes

Continuing on my previous post on timeframes, I have found momentum trading to be the most profitable and easy to trade. By having a timeframe of few days to a few weeks it is easy to spot and ride a trend even in these volatile markets. What may appear rangebound and directionless to someone with a longer timeframe will appear trending to someone with a smaller timeframe. It takes many hours (more likely years) of research and backtesting to arrive at the correct timeframe. But once you arrive at your sweet spot, its a smooth ride.

Timeframes for trading

Often one hears one Technical Analyst being bullish (going long) on Nifty while another being bearish (going short). While this may appear confusing and paradoxical it is possible both will eventually end up making money. The reason being each person trades in his own timeframe. Broadly speaking the following timeframes exist:

1) Long term traders : timeframe of greater than 3 months
2) Momentum traders: timeframe of 1 week to 3 months
3) Day traders: all positions squared off by 330pm
4) Scalpers: They enter and exit markets in a matter of few minutes

The key is to identify your timeframe and trade according to a well tested sytematic plan. Then watch those Nifty points pile up!