I am Taking Profits - Sainik

The ferocity of the rally in the last few days, from a low of 2200 levels to the current levels of 3000-plus, surprised even an ardent follower of the market like me. I am unable to remember such ferocious pullbacks in the past many many years.

This also makes me wonder: What's happening?

Being a prudent speculator, my gut instinct tells me that something seems to be wrong somewhere. As a long-term investor, I was hoping that if one buys around 2400 levels, one would get a return of around 25 percent in a year's time. This has happened in just 5 trading sessions!

Under such circumstances, there is no harm in taking profits after getting such a humongous pullback. I am taking profits entirely and waiting for the air to clear.

Better to be safe than sorry.

An Ocean of Opportunities - Sainik

The last time I "retreated" the Nifty was skirting at 4400. I was very uncomfortable with what i saw: unbridled optimism. I called it then, "the slope of hope". Many people did not like my opinion, but anyway i decided to "walk the talk" and sold all my long positions and went short within my limitations. Now, again I am uncomfortable, but for entirely different reasons :this time, I see unfounded pessimism and hopelessness.

I call it the "Wall of Fear". The wall seems so humungous and everyone seems to be running scared. I remember the visual interpretation of Alexander Elder in his book Trading For a Living, wherein he likens the market movements to two rival gangs of Bulls and Bears, engaged in fighting over territory. The stronger of the gangs keep pushing the relatively weaker gang back in to their territory. When they are dangerously deep into their rival's territory, the so-called "weak gang" gets its act together and fights ferociously with their backs to the wall and push the original stronger rivals back. The "hunter" becomes the "hunted". I think that such a situation has arrived. It is time for the "hunted" to turn "hunter". If ever there was a time for a short-term trader to sell all his heirlooms (including his Mother-in-law's jewels) , this is the Time to Do It.

No point in quoting, Warren Buffet or other prophets who say: Buy when there is blood on the streets. When there is blood on the streets - not just a small drop, nay a stream of blood, nor a river; right now there is an ocean of blood out there. There is an ocean of opportunities out there begging to be bought.

I have done my duty: I am long in the market like never before. This is all a humble soldier can do. What will you do?

Happy Diwali.

Trading in a Volatile Market- Santosh Gundecha

Market has shown that it is 'Supreme ' and has made a mockery of most of the analysts. lobalization took toll on Indian markets. Most of the analysts including myself, were not comfortable with the way market was trading above 4200-4300 and were of a view that market will go down and try to test 3800-3850.

Market did the same but not in the way everybody thought. It was going down like a falling house of cards. As IF this was not enough, the V shaped recovery after making bottom near 3800, caught most players on the wrong foot.

The non-stop news coming from US, made players unable to take any sort of positions, long or shorts. Daily gap-ups and gap-downs in the Indian market (courtesy Dow Jones) made all investors, traders and other market players - HNIs, large traders and small Fund managers - very uncomfortable.

Market has shown its supremacy so players have to go to the basics.

The first rule: 'Bull Market has no Resistances and Bear market has no Supports'. The supports were breaking so fast in 6-7 days of downfall from 4500 to 3800 that the levels were just numbers and not supports.

Second Rule - In bear market relief rallies are too fast and vicious. The same things we are observing now: we are about open a good gap up on Monday. So we are retracing fast in 3 days to the fall. To add to the 'Firangi induced' volatility, is our last week of expiry. So every player will be ready with his position to cover on or before expiry as the future looks very uncertain.

FIIs are major sellers in the Market are causing the Rupee to depreciate as much as 15 percent in the last few days. However IT stocks are not able to gain much because sentiment is much hampered for these stocks, since much of their business comes from the US ,and everybody is suspicious about the health of US companies and thus their ability to spend on IT development . This would have been a boon for IT companies as they were to have Super profits of 15 percent due to depreciation of Rupee.

Trading Strategy: Last few months, the market was moving in a range with small volatility. So major HNI and Small Fund Managers were happy selling Options i. e. calls and puts to get 'COOL' 3-4 percent profit in an expiry. This time many of them have burned their fingers because of the two-way movement. They had to go for hedging/ counter-hedging and this made things more complex.

While doing this one tends to forget simple rule that 'OPTIONS WRITING PAYS ONLY IN NON-TRENDING MARKETS'. One cannot be stuborn with markets and make a single strategy (like Options writing) to earn in every type of market.

It is a better opportunity (and simple too) to play with plain Options i. e. calls and puts strategy like Strangles, Straddles etc. Plain calls and puts are paying much more with limited risk .

Now we are moving in last week of expiry and are about to open with a gap-up on Monday. Technically there are a series of resistances starting from 4330 to 4550. It is advisible not to Fight with market and Play with simpler tools like Options, when we move 100-200 points in Nifty a day. (Those watching charts can watch Candles and gaps in the daily charts).

Hoping this write up will be eye opener and wishing all a Happy and Safe trading.

The Soldier Retreats - Sainik

The bugle has been blown. It is time to pack up and retreat. The way the market has been behaving in the last few days has convinced me that, it's time to turn bearish conclusively and expect lower prices in the short as well as the medium term.

My reasons are:

1. Fundamental: The recent rise in interest rates by RBI has made credit costlier; the government has given in to populist pressure by implementing the sixth pay commission recommendations. Today it has also announced cash to the fertiliser companies, while it has also rejected the Chaturvedi Committe recommendations for the oil sector.

2. Technical: The Nifty has been trading below 9 and 20 Dema for the past few days. The volume is drying up, and biggies like Tisco , ICICI Bank, Tata Motors, Satyam Computer, Bank of India, and Reliance Industries, are just not showing any bullish signs. On the other hand the breakdown is severe.

3. Sentiment: The sentiment on the street is to buy the declines in the hope that 4700 is the forseeable target, with higher targets like 5000 also being talked about. The screeching team from CNBC is becoming more bullish in contrast to their stance when Nifty was at 3800.

This is definitely the Slope of Hope. As this fall is akin to Death by a Thousand Cuts, by the time people realize it, it will be too late.

The Soldier Retreats.

The Light at the End of the Tunnel - III - Sainik

I have been consistently long since end of June and had to undergo some traumatic moments in the first fortnight of July. However, since I was fully convinced of the inherent market strength, I averaged on the way down and held on. That has given me good rewards as a trader in July.

For the August series, I have again, created fresh Long positions on Friday when the market opened with a downward gap. While I will “job” on all rallies/dips, I hope to keep a core Long position for the foreseeable future. I expect August to close higher than July.

In terms of scrips, I have carried forward my July longs into August, i.e. Reliance, Ranbaxy, Tata Steel, Strides Arcolabs and Bank of India. On Friday, I loaded on to Reliance Communications, because I believe that in any bullish wave just buy a good stock which gets hit harder than it deserves to.

This Claimer: As usual, I advise people NOT to follow my advice blindly. My risk-taking capabilities are far higher than many traders’. Further, not understanding my strategy in its entirety and trying to implement it could put your capital at unknown risk.

The Light at the End of the Tunnel - II - Sainik

More thoughts on the foreseeable future:

Market Psychology: Today everyone is convinced that we have only headwinds for our economy and thus would be cautious in investing. However, the market seems to be having it own mind. It’s simply because the strong hands are accumulating. Not for a moment one should confuse strong hands as FIIs; the FIIs are not always the strong hands. My research over the years has conclusively proven that FIIs increase their selling pressure when the market is bottoming out and vice versa. The invisible strong hands are the “operators”, LIC/GIC/UTI etc., or even corporate treasuries. Hence, while you will see the screeching increase on CNBC for the bearish case, the mats are likely to be on their bullish paths.

Fundamentals: While there are many external and internal threats to our economy all of these are already well known. Good corporations would plan accordingly for these threats. I have seen in the past that the strong become stronger during such times and the weak fall by the wayside. This time too, this is likely to happen. Watch companies like Hindustan Unilever, which continues to show good results in such an environment or for that matter Infosys.

This Claimer: As usual, I advise people NOT to follow my advice blindly. My risk-taking capabilities are far higher than many traders’. Further, not understanding my strategy in its entirety and trying to implement it could put your capital at unknown risk.

Also read: Light at the End of the Tunnel - I

The Light at the End of the Tunnel - I - Sainik

After a tumultuous July wherein I have been consistently bullish, here are my thoughts for the foreseeable future.

Technicals: I use Elliot in the broader sense, when I look at the markets and it has always worked very well for me. I do not care much for the C1's and C2's, X waves, etc., because I want my indicators and oscillators to be simple and, more importantly, a decision-making tool. So, by my interpretation of the Elliot structure, the market bottomed out at 3775 levels, at the height of pessimism – remember July 11 thereabouts, when every Tom, Dick, Harry and Harry’s Dick were sure India was staring at a black hole.

The first wave, which is typically very sharp, took us to around 4540 levels. Then the pessimism set in after the RBI interest rate hike, and it fell to 4150 levels. Again, every Tom bear, Dick bear and Harry bear shouted from the rooftops: I told u so, that the previous rally was a "fake".

As per Prechter, the conditions prevailing at the end of the second wave are equal or worse than that prevailing at the bottom, yet the market does not go lower than the previous bottom. See how well this fits in with the current scenario.

From a second low of 4150, the market took off. This is the third wave. One of the characteristics of the third wave is that it is generally smooth, long lasting and, slowly and surely, all encompassing, and it will ultimately cross the high of the first wave. At this point of time, we should not worry too much about the A/D line, because in the beginning part of this wave there would be many disbelievers and it would usually be led by the large caps. Also in this phase, the good news will attract bigger rallies and the bad news will get digested more easily and faster. Watch what happened on Friday. As far as my reading of Elliot is concerned I am looking for higher levels in the foreseeable future.

This Claimer: As usual, I advise people NOT to follow my advice blindly. My risk-taking capabilities are far higher than many traders’. Further, not understanding my strategy in its entirety and trying to implement it could put your capital at unknown risk.

Also read: Light at the End of the Tunnel - II

A Day in the Life - Nifty Future August 1

Overnight the Dow had lost some 200 points, the solar eclipse keeping astrology followers forlorn, the mood was decidedly bearish, after traders woke up to a -70 Singapore Nifty future. Watching the Singapore Nifty future has become a kind of morning ritual for Indian traders and today was no different. As said earlier, today was expected to be a deciding factor in the Nifty and its future. Some consolidation and then a decisive move.

Lo and behold, a gap down, and a crack of 4275, made me think that the trendline was broken and we would be heading for the bearish case. It is then AP said that 4235 was a sort of a gap fill and could be a good support. It could be a time to go long.

Nifty future unfolded itself at the bottom with a higher low, and from then onward we just had a five wave motive wave on the 5-minute chart. I have said that 4440 was an important point. This is because somewhere here, the downtrend from the 6600 tops can be cracked and would be the first sign of some recovery for bulls.

All in all, the day was one massive bull play. Shorts were covered and new shorts were 'raped' as some of my friends like to describe it. Every singe bull investment was paying off. There were no major retracements and one had to just take a bull position and rake in the moolah.

Monday appears to have similar overtones. We have a down Dow and Nasdaq, and conditions appear mildly bearish. May be some refraction from the overzealous passion of August 1. Nonetheless, if 4530 is cracked up, we seem to be getting to 4880.

Singh is King - Will History Repeat Itself - Sainik

This evening while the persistent bulls rejoice and the huge multitude of bears have a sleepless night, my mind goes back to nearly fifteen years ago, to be precise July 28, 1993.

Leading up to the trust vote for the Narasimha Rao's government, everyone was sure that the government would fall and the market was being sold left right and centre. I too was taken in by the bearishness, and had shorted the market.

The sensex bottomed out at around 2100 (yes Sensex 2100), on July 20, 1993. From there it attempted a moderate rally for the next few days, and on July 28, the day of the vote of confidence, the Sensex was flirting thereabouts.

While the obituaries of the government were being written by everyone, Narasimha Rao kept a a poker face and seemed confident, which seemed strange at that point of time. However, he had an ace up his sleeve: the JMM - yes the same Shibu Soren his cronies - had been virtually "kidnapped" and showered with all "gifts" - which included huge amounts of cash and liquor .

When the voting began, the members of the JMM virtually staggered into the house, not knowing which way their seats were. They voted and what a precious vote it was! The government was saved and the Sensex rallied from 2100 levels for the next few weeks to top out at 2800 levels - a gain of nearly 700 points which translates to 35 percent - yes 35 percent.

Now, just imagine what a 35 percent gain would do to the Nifty today. Nifty would have to go to 5600 levels . In 1993, I had covered my shorts, but lost much more than "my shorts" in the process. The lesson had taught me never underestimate a "silent man". The silent man then was Narasimha, but this time it is another lion, "Manmohan.

The only question in our minds should be: Will history repeat itself ?

The Bulls Win the Confidence Vote - Sainik

On Thursday, July 3, my trader friends were nervous when the Nifty futures closed at 3870. To cheer them up, I bet the Nifty futures would go up 100 points the next day. The caveat was that if I won the bet they would give a part of their gains to charity, and they agreed laughing uncharitably. Friday came, and voila, the Nifty futures crossed 3970 intraday.

Well, the Gods were kind to me and the charities. Encouraged by this, I made another prediction that the July-11's Nifty spot would close higher than the previous week (July-4)'s close. Second time lucky, you would say, as the Nify crossed 4000. Then came another prediction, that the Nifty would close higher on July 18. 'Do not test your luck so many times', cautioned my skeptical friends. However, all my indicators were all flashing green and I made my bold prediction.

Friday, the sharks were circling around me, even at noon, with the Nifty futures struggling about 3940 levels. My ardent supporter - my wife - too had given up because the market was "apparently" doing nothing. The day's open, at 3951, was the day's high, volumes were low and the market appeared comatose. While everyone around me was pressing the sell button, my mind went to an old market adage: "Never short a dull market".

How true it turned out to be! What a wonderful sight it was for the bulls, as the market climbed higher and higher, like it was Jack's beanstalk. As the CNBC anchors droned on and on, spewing decidedly "bearish talk", the market closed above last week's close.

With the week wrapped up, this now brings us to the prime question: Now what?

As we enter the "confidence vote" week, with all the talking heads analyzing and re-analyzing the magic number 272, the market has already voted in favor of the bulls.

Technically, the Nifty is at the 20-day moving average (DMA) resistance, about 4100. The Nifty has never crossed the 20-DMA resistance to the upside, which it had broken downward, on May 22, when it was trading above 5000 levels.

For all practical purposes, this resistance is formidable, but the price action in the last couple of weeks suggests that it is still "Advantage Bulls".

Living to Trade, the Rocky Balboa Way - Sainik

In his landmark book "Trading for a Living", Alexander Elder, the author, talks of visualizing the market as a gang of bulls and bears, who are equally matched in strength, but who try to push each other to the extreme akin to a game of tug-of-war.

At some point of "no return", actually, the "weak" guys become strong. That is the point when the "weak" guys say: "Enough is Enough". The so-called weak guys have been beaten so badly and the other gang is so confident and ready to give the "sucker punch" as it were , when the weak guys in turn get up and fight with renewed vigor and slowly and surely push the other gang back.

I hate to "hunt for the bottom", and have been a contrarian bull for the last fortnight, whenever the Nifty has fallen below 4000, yet, yesterday's price action in the last 45 minutes brought me back memories of June 15, 2006.

Traders would be familiar with the turmoil in our markets beginning May 11, 2006 and the vertical crash of May 22, 2006, followed by relentless selling by FIIs in June 2006, when all the world was selling India. Bulls were battered day in and day out, and every rise was only a "dead cat bounce". On June 13, 2006, the Nifty futures made a low of 2590, going below a psychological support of 2600, and somehow bounced back to close above 2600.

Then June 14 dawned, and the die-hard bulls thought that they had found the bottom,when there was an upward gap opening, yet, once again, the bears took complete charge and pushed the Nifty future to a new low of 2575, in the last 45 minutes, thereby eliminating all the remaining "die-hard and hopeful bulls" - the futures barely managed to close above 2600 for the second consecutive day.

The price action of that day reminds me of what happened yesterday, when the lowest low of 3790 was broken in the last 45 minutes to make a new low of 3775 and the futures struggled to close above 3800 levels.

When I trade, I not only look at "raw numbers" but a variety of indicators, like how those numbers came about, volumes, price action, the kinds of scrips which moved those numbers, the sentiment among analysts, traders, media, etc and finally what my "gut" says.

All these indicators point out to me that its better to be bullish than bearish in this environment. For all those bulls and bears out there, it's worthwhile remembering the quote of the famous boxer, Rocky Balboa: "It ain't about how hard you hit, it's about how hard you can get hit and keep moving forward, how much you can take and keep moving forward. That’s how winning is done."

I am a Drug (Ranbaxy) Addict - Sainik

The last couple of days have seen a phenomenon in a particular scrip which should have delighted any self-respecting technical analyst. The phenomenon is called Capitulation, i. e. a stock or index falling and breaking important supports on very high volumes.

The price and volume action in Ranbaxy in the last couple of days would classify as a textbook definition of what capitulation is all about. Typically, the trading volumes in the cash market for this scrip, is around 15-30 lakh, with deliveries being around half of the traded volumes.

On Monday, Ranbaxy clocked volumes of a little over 1 crore shares, with nearly 46 lakh shares, being marked for delivery. Yesterday it surpassed the record, when more than 2.45 crore shares were traded, and of this more than one crore shares were marked for delivery.

While the fall in the last two days can be attributed to fundamentals-and-news-driven factors, however, any self-respecting technical analyst should be concerned only with the price and volume action.

In my humble opinion, Ranbaxy is a good technical buy, with a target of above Rs 500 in the forseeable future. The stoploss would be yesterday's close of Rs 410.

This Claimer: I am long in Ranbaxy yesterday around Rs 415 and have added to my positions at Rs 435 today.

Time for Contrarians to Walk the Talk - Sainik

When I predicted Friday, July 4, we would see a better closing for the week ended July 11, a few of my friends had smirked at me, what with all the uncertainties swirling around. A week is a long time in politics as well as markets. This weekend too, I am optimistic that we should see better days as we go ahead.

Why am I so hopeful?

Turn the clock back to January, 2008, when fund managers and analysts were united in proclaiming that we were completely decoupled from other markets and Indian markets would continue to see higher highs in 2008. The bull-bear ratio would have been 70-30.

Today I am unable to see a single commentator who is hopeful for the market for the next 6 months. The Internet has caused very rapid dissemination of information, hence every Tom, Dick and Harry is convinced that the world will collapse and India would be leading the way with Sensex targets below 10,000.

The horrendous numbers coming in are not helping the case: inflation, IIP, etc., the question on everyone's mind is: Who will dare to buy? Yet, on Friday the Nifty bounced back nearly 75 points from its low. All of this in spite of both local and foreign institutions joining the selling bandwagon, which is a rarity. This makes me suspect that the latest pack of bears are not strong enough.

Such events bring out the contrarian in me. I am too aware of the fragile nature of the financial markets, yet in my humble opinion, there has never been a better time to be a contrarian and play for about 200 points on the positive side for the Nifty.

This is a low risk play, with the stoploss being in the region of 3800 levels. I am walking the talk, by being long in the Nifty.

Volatile Week Ahead July 14-18 - Santosh Gundecha

Astro View: I had written in one of my earlier article on July 7 that Saturn and Mars are in conjunction at exact degrees on July 11, in astrology sign of LEO, which is the enemy sign of Saturn. As a result, we witnessed a lot of uncertainty, volatility and bearishness. This happened not only in Indian markets but also in US stock markets, Crude, Forex , etc.

I was expecting stability to come slowly by July 15-18, but now I feel we will have to wait till at least until July 22-23. On July 21 there is a debate in Parliament. (A 'debate' means allegations and counter-allegations). On July 22, the government would take the Vote of Confidence. This points to the fact that until July 22, rumors would run overtime.

Technical View: On Friday, the Dow kissed 11,000 mark but managed to close above it. The 11,000 incidentally a good support on Dow.

On the Indian bourses, the Nifty future had 7-week consecutive weekly bearish candles, followed by a weekly candle 'Doji'. A doji signifies indecision. We are still moving in a range , but the range now is growing with rising volatility. One can consider 3800 to 4200 as the range for Nifty futures. However, we have good support at 3810 > 3750 >3700.

On the Daily chart, the Nifty Future had a bearish engulfing candle on Friday, thus eating all the gains of earlier 2 days.

Trading strategy: There is a lot of volatility in markets, however there are some traders who cannot sit without trading. For them, one could trade Options, as Options have limited risk. One strategy would be to buy Nifty calls, when the Nifty plunges toward the lower side of band. Do not forget to use stops here too.

Gulliver and the Lilliputs - Sainik

The markets are at the crossroads now at 4100+ levels on the Nifty. While the bulls are expectant that a significant bottom has been achieved around 3800 levels, the bears are convinced that it's only a matter of time before this breaks and then 3300 will be in focus .

While Infosys has reported better than expected results, this has still has not helped the "bull case". Most market men are expecting inflation numbers and IIP numbers to be lacklustre at best, and horrendous at the worst. The biggest ally for the bulls is not Infosys, not lower inflation numbers or higher IIP numbers, but the one and only Reliance Industries.

For the bulls to rejoice and the bears to scamper, Reliance has to wake up from its deep slumber, a la Gulliver . This is the only prayer that bulls should have on their lips.

While the bears (Lilliputs) are convinced that Gulliver will never wake up, the next few sessions would provide the answer. Currently Gulliver is resting at 2035 levels. His wake-up time is 2070 (not the year, but the pricepoint).

This Claimer: I am on Gulliver's side.

USD will Define Crude Top - Anil Gandhi

The global equity markets bottom is quite strongly linked to top in crude oil as of now, and crude oil can top out only when US dollar (USD) starts its Bull run again.

Amid talk of a bear run and recession in the US economy, a bull run in USD will move money out of Gold -- for a while considered a safe haven -- and also put a top in crude oil (cheap import of oil in USA). This will be the starting point of stability and the short-term bottom resulting in 2-3 months of uptrend in the equity markets.

I recall how Dow had topped out earliest in October 2007, before rest of world markets had topped out in January, so ideally Dow should bottom out first followed by the rest of the world 's markets. Invest 35 percent of your cash now in frontline stocks. Just 35 percent and not all of it.
and keep adding on more as the uptrend starts and more signals comes in.

Don't Short, Just Buy It - Sainik

Yesterday, all the financial channels' "experts" were constantly proclaiming that going forward there is only gloom and doom ahead for India. To buttress their arguments, they cited high oil prices, high inflation, high degree of political uncertainty, high fiscal deficit, high what have you. They were virtually on a "high" with the redoubtable Lata Venkatesh taking the cake -- and the bakery too -- as she scaled the heights of pessimism. They all must have been aghast, when they saw that the market was resilient.

Bhav hee bhagwan hai. This is nothing new. Market always do exactly the opposite of what the consensus is. Who would dare to buy when it is so "obvious" that everything is in bad shape. If you listen to the "experts" , the next best thing to "not buying" is "short selling".

After analysing the market internals, the markets are telling me that indiscriminate shorting is going on. This short interest will provide a floor for the market, at least in the short term. I expect the market to move up in the next few days and next week's close would be better than week's. Some time in the near future , I expect panic buying -- yes panic buying -- to emerge.

This would be the precursor for the next intermediate top. At that point in time, you are likely to see the same Latha Venkatesh and her cohorts exhorting people to go ahead and buy. This then would be the time to short. Until then, do not remain short. Just Buy It!

This Claimer: I continue to hold Nifty long positions for the past one week and have added to them very aggressively during the week.

Why I Feel It's Not Time to Sell - Sainik

Analysts and fund managers are all asking us to be cautious and the bravest of the brave are asking us to nibble, by putting in around 10-20 percent of capital to work. Technical analysts are going berserk, saying they expect 2600. I read that if Nifty breaks 3800, we go straight to 2600.

But, hey, wait a minute, what is this I am hearing? Were we not being told that the Nifty at 6000 was cheap and one could buy with a 3-year timeframe in mind. All over we would be hearing the most pessimistic downward target of 5000 at worst, or best, depending on whether you were long or short. Today those targets have been halved.

The markets are driven on two pivots: fundamental and technical, i.e money flow. Surely, money was flowing inward at 6000 Nifty and it has reversed at 3900. However, at 12,750 Sensex, the PE for the Sensex would be around 12, with an expected EPS of 1050 for March 2009. Very rarely has the Sensex traded below 12 PE in the past. If we touch 9000, the Sensex would trading at 8 PE, which would be a lifetime first.

It is said that those who forget history are condemned to repeat it. At Sensex 12 PE, you are being asked to sell, and when the PE was more than 25, they were asking you to buy. Think and decide whether you want to believe the analysts or should you be using common sense instead. As they say, common sense is not commonly found.