Saturday, September 20, 2008

GOD Help Us............ We underperformed Europe!!

0925 hrs: The Asian markets opening almost gave me a heart attack. Though the opening were green - only Nikkei remained green about 2% up and Hang Seng and Strait Times dived red immediately opening. However some sense seemed to have prevailed with all indexes in green. I would suggest that every 100 or more points up we take Put calls to hedge. Take a step without precautions may mean a deep plunge. And of-course I forgot the Pivots for the technically inclined.
R3 4546.85
R2 4404.75
R1 4325.00
Pivot 4182.90
S1 4103.15
S2 3961.05
S3 3881.30

So that is what happened on Friday - a perfect day with a runup and we dedide to umderperforme Europe. We ended up gaining lesser than what Europe did. sob sob... Nifty was up only 5.46% and in europe FTSE climbed 8.84%, Dax 5.56% and Cac 9.27. Okay inspite of the what I have written on top - the day was good and we did make some money. It was required after what we went through last few days. Now the moot question - do we sustain it? I personally feel that for some time now we should not have a problem. The reason is that US is taking steps it deems necessary to get the economy in action. If that be so - then why should we see it in negative light at all? It is because firstly even the best brains still do not understand the size of the damage to the US economy still. Secondly the domino effect will continue - there will be extreme caution on the streets even in the best of the scenarios. The fact remains that the attention from the US govt is becoming greater day by day because they see this as one of the biggest showdowns in history. It is not the same as the period when th US went into the Great Depression of yesteryears. It may be even worse. The US bounced back with vengeance becoming the world's superpower then. This time it is different in the sense that it will be relegated to the just one of the nations of the world in terms of economy - I will be personally surprised if by the time the dust settles finally the US will have the same clout it had for past 100 years now.

Okay now I have spilled out the poison in my mind I will talk about what I expect the markets to do. Firstly the biggest news that has given us this wonderful boost is that US govt is doing all that it can to come out of this crisis. The Bush administration asked Congress on Saturday for the power to buy $700 billion in toxic assets clogging the financial system and threatening the economy as negotiations began on the largest bailout since the Great Depression. The rescue plan would give Washington broad authority to purchase bad mortgage-related assets from U.S. financial institutions for the next two years. It does not specify which institutions qualify or what, if anything, the government would get in return for the unprecedented infusion. Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and to condition the bailout on new limits on executive compensation. Congressional aides and administration officials are working through the weekend to fill in the details of the proposal. The White House hoped for a deal with Congress by the time markets opened Monday; top lawmakers say they would push to enact the plan as early as the coming week. That being so - there is a strong possibility that the govt will take other steps along with it to stabilise the markets - like it has banned shorting financial sector.

With all these happenings in the markets the investors got a semblance of normality and the markets soared. SO much so that in Europe FTSE ended 8.84% up, Dax 5.56% up and CAC - an amazing 9.27% up. US too appeared in euphoric mood with Dow 3.35% up, Nasdaq 3.4% up and S&P 4.03% in green. This should ensure a green opening in Asia tomorrow morning.

The candle on Nifty was a huge white one. It has written of 50% of the drop we had since Sep 9th. Unfortunately all the indicators take cognisance of the past performance in deriving the figures. Most of the modern day indicators give weightage to the performance starting with data in the immediate past and then give progressively lower weightage as we go back in time. So one days candle did change the stance of the indicators but have not got them into positive mood still. Bollinge bands have stopped growing and that should ideally indicate the downtrend arrested for the time being. The reversal of trend is some time away. We are now somewhere in the middle of the Bollinger Band. The DIvergence between the 5 EMA line and 20 EMA line has reduced but red line still trails below blue. Volumes for past two days were more than average and same on both days. MACD tell a similar story and the divergence has reduced but the red line is still below the blue line. TRIX continues to look down standing by its bearish signal. Slow Stochastic had generated a buy signal two days back and continues with its buy recommendation. RSI has turned positive. The mass index continues to look up now about to touch 26. It is not good - believe me TRIX and Mass index are two reasons that I am cautious.

Green opening is a foregone conclusion and I really feel that the possibility to touch 4500 by thursday is good but the resistance now in place in 4500-4550 range is quite strong and will require conviction to break through. On the down side 4200 has become a fairly strong support and 3800 - because of any reason also shown strength that is not likely to be broken easily.

Crude has again inched up to 102.73$ and crude going up cannot do us well. US is likely to pass the Nuclear deal in congress on 29th Sep. So we wait for monday and hope that we continue with this run up for a few days more. Pakistan is slipping into fairly grave situation with the fundamentalists scoring one psychological victory in terrorising the nation one after another. Instability in Pak will not do us good in long run. I am not aware of any forthcoming event that is likely to affect our markets one way or the other in near future. If someone has a suggestion please post it so that we all gain.

Okay now my appeal to all who read - please be active in commenting to the writeups - it opens my mind and will be beneficial to all who reads with different insights. I will also look up technical indicators for individual stocks if you request me. Also please do subscribe to the feeds - it will deliver the write up to your mail box the moment I update it. Please do click Follow widget if you read daily - It will raise my morale. -- Oof -- and that is too much of lecturing for a day - best of luck I will try to update on monday morning.



Anonymous said...

Hello Cheema,
A nice writeup once again. Its always a pleasure reading your posts. One thing I would like you to take note of is that although dow went up by 463 points on friday, it ended at 368 up. Means it saw profit booking in the closing hours. Why it did not close near days high just like all world markets did, inspite of the respite provided by the fed. Perhaps, this could provide us with a very very early signal of the things coming up in the following weeks. For me, the bull run will resume once we cross 4650, the immediate short term previus high convincingly with volumes,otherwise, we will back in the doldrums.

S S Cheema said...

Thanks for pointing out that fact - but there is fear in everyone's mind - afterall it is not easy to become bullish or for that matter bearish overnight - so if anyone is in profits they will try to book and take home some profits over weekends. If you read any of the investment books they say that carrying over trading settlements overnight is risky and to roll them over on weekend is extremely risky. You just cannot predict what will happen in two days - we are living in the times where news - the good or bad spreads within seconds. They have a reason to be afraid. We on the other hand are not the US story.
After you pointed it out I pulled out the candles of Dow. the candle by itself is not bad and there should be not problem in near term - provided another Lehman or AIG does not jump out of their closet.
In nifty the level of 4650 itself has some resistances to be crossed in between so I will take them with a step at a time but - yes I agree - above 4600 will make a whole lot of my indicators positive like a lit up christmas tree.

Joe tom said...

Dear Cheema,

You have written such a nice report for the day which covers the real issues confronting the markets with a practical approach to what may happen in days to come. After reading your Blog at mid-sea, I know where we stand as on date despite the fact that I do not give too much weightage to the TA factors. I mean, during a turnaround, TA indicators will show the actual direction too late to follow. That is dangerous for the ordinary investor. For e.g., by the time you get all indicators positive from today’s level, the indices might be too high for anyone to enter. Similarly during a time when indices peak out, to get a sell signal will be too late by when indices will reach way down. If the investor keeps this point in mind, your blog will be a boon to the small investors. Your yeoman service of serving the interest of common investor is really praise-worthy.

Brgds, Joetom

S S Cheema said...

Thank you for the nice comment. Coming from you has a special meaning.

Uma said...

cheema: we have a tiny little gravestone doji! I hope my ICICIBank puts pay off...I'm feeling like an ass sitting in that short since 600 level. Today it hit 640.