Update for 29 May 09

Unlike what was expected in this time of the year, the weather has so far been good here in Chandigarh. The mornings are pleasant enough to sit outside and enjoy the city beautiful. Many a times when I was small I used to wonder why all our cities cannot be like this – not that I have found out the answer till now. We, as a nation are built up fighting and living a crisis to crisis – and do not plan ahead as it should ideally be done, that is why perhaps number of planned cities in our country can be counted on the fingers of left hand of a person who has only three of them ;-):- Coming to the markets – the markets showed strength yesterday inspite of the likelyhood of the anticipated long unwinding that could / should have taken place yesterday. That strength stood the test of negative opening of markets in Europe. I would not be able to comment on whether we are disconnected with the world markets as of now or not but to a layman (like me) it seems so as we are often forging our own paths.

Like I mentioned above the European markets closed with negative bias of around a percentage point. FTSE was down 0.65%, DAX down 1.36% and CAC was down 0.95%. The US markets opened flat and spent better part of the trading day seeking direction – often visiting red territories and bouncing back along the flat line. After the midsession – the markets firmed up and ended almost at the best levels for the day. DOW was up 1.25%, Nasdaq up 1.2% and S&P up 1.54%. This rally or upswing has been attributed to the smooth auction of the 7 year Treasury note.  The question of GM’s likely bankruptcy still haunts the investors there. The mortgage crisis seems to be spreading as reported there where in the stage has been reached – the borrowers with good credit ratings have started defaulting on the cards because of job losses and pay cuts.

On the technicals side we had a small white candle like I mentioned earlier against the expected cooling off of long build up during the month. That may happen today. We are on the upper edge of the Bollinger Band and all lower EMAs are comfortably trailing above the larger ones. This indicates a continuation of the uptrend. Day before 2 EMA had crossed below the 4 EMA and might have signalled a beginning of downtrend but this was corrected the next day when the made a 100 point plus candle. The volumes have been good, infact very good considering our past few months. MACD is bullish. RSI is back into the overbought zone. ADX is interesting. As of past few days the – DI had crossed above the +DI but it has reversed again giving positive undertones to ADX. Only trouble is that the ADX is at 22.97 and that shows that the trend is very weak – so I would expect either a trend reversal of settling down in a range bound market for some time. Slow Stochastic has turned bullish once again. TRIX is looking up. So here are all the indicators I follow.

FIIs bought a net of 1859 Cr worth yesterday and the DIIs sold 451 Cr worth. The Pivot data for all those interested.

R3 4454
R2 4415
R1 4376
Pivot 4315
S1 4276
S2 4215
S3 4176
Projected High Range 4345 to 4395
Projected Low Range 4312 to 4262

Fib Projected high 4318

Fib Projected low 4226

I will end here – I am not inserting the Options charts as the Options oracle is not playing up. This weekend I intend discussing how all the indications generated by ADX and its strengths and weaknesses.

Update for 28 May 09…

On the onset let me apologise to you for being out of touch for so long. I had mentioned one of the days earlier that I was expected to go on leave. I am on leave, and having a ball of a time the only problem that I faced was -- there was no connectivity at all. Believe you me no GPRS, no broadband, no TV. In hearts of hearts I missed all these but then I believe it is wonderful to be unplugged from the world once a while. In fact I had beginning to enjoy it actually but then today I am online with a brand-new reliance broadband dongle. There was no way that I was going to be unplugged for so long.

 

In the meanwhile the markets have been in a topsy-turvy, gaining as there was no more. The news has been good I do not hope it at all and as long as the smaller the EMA's are trailing above the larger EMA's there is no way that the markets are showing any weakness. But -- BUT remains – I often ask myself a single question – what I have to gain or loose by adjusting my forethoughts to suite the mood that is prevalent in the markets and ride with sentiments? See I too have no doubts that there is euphoria in the markets – the govt is much more stable than before etc etc – but even so the govt is unlikely to present a miracle drug to come out of the present situation – unless ofcourse there is a recovery all over the world I feel that we should remain range bound for perhaps a long time to come meanwhile the ride the good times.

 

Seeing the performance of Asia yesterday – Europe opened green and then slumped negative and then oscillated till the closing – closing mainly flat with FTSE up in green 0.1%, DAX green 0.3% and CAC green 0.76%. US opened flat and then after midsession took a hit where in it finished around the lowest point of the day – DOW ended at 2.05% red, Nasdaq down 1.11% and S&P down 1.9%. Asia has taken these cues for starting the day – Nikkei started in deep red but almost immediately recovered most of the losses – trailing just 0.05% down – Strait Times is down 1.51%.

 

The charts are the interesting part that agree with my line of thinking. They are as apprehensive as I am (;-D):-   The candle yesterday was a tall and white one and we are once again attempting to trail or rather come to atleast the middle of the Bollinger bands. The attempt may or may not be successful and the market might try to test the middle of Bollinger bands at around 4000 levels. The 3 EMA was trying to mesh with the running 15 EMA but the plans were cut short with the today’s white candle. Cut short or delayed is something that we will come to know at some later date. Volumes have been good. Now the ADX – it has been long and it has not been lending any support to this run up inspite of the good volumes that we see. No uncertainty about a negative divergence. MACD is bullish without a doubt. The slow Stochastic are bearish with an attempt to become bullish. RSI is overbought at 70.26.

 

So that is about all – from my side the deductions are yours but I am more certain perhaps of a downside than an upside. Best of luck to all. I will try to be regular but this holiday binging may not allow me to do so.

Where are we heading too? Update for 18 May 09

About a month back Jaggu made a mention to me about a phrase - ‘The Black Swan’ effect. I did a google and realised that it is one of the theories that is there on the unexpected. Anyway – later when I was in Mumbai I saw the book  written by Nassim Nicholas Taleb – The Black Swan. Going through it – it does has a point of view that is difficult to ignore – and then I see our markets and how we (the retail) behave – I see the book in the different light. We – the retail are always behind times to see the truth or the untruth. We are in a state of denial till the time it is already too late. Then too we really do not know how to react when the situation is there in front of us. Then our other habits or lack of the same always is against us – working to eat us slowly making us hollow. No – don’t get me wrong. I know of people who had a strategy which has worked – but it has worked not because it was foolproof – but it worked because the courage of conviction was just too much for it not to do otherwise.

After the elections are over and there is a verdict that the Congress will make the next govt at the centre – that factor of uncertainty is out of our lives – even if temporarily. Now inspite of the result and all well on this front – the mind refuses to see this blindly and options stare us – the options that may or may not to be our liking.

  Frankly the present situation is the best anyone would have hoped for. A stable UPA with minimal outside support. So much so that even people like ‘Lalu’ have admitted that they have lost out by not supporting Congress and trying to break away. Now as far as the reaction in the markets is concerned there are two schools of thought. One says that the worst – atleast as far as India is concerned is over and now we should loo forward to a bull market. The second says that the worst is not over yet and we are still to see the worst.

Now where do I fit in all this? Well I frankly feel that we have a situation were we can see the mix of both the theories. We have a good upswing in the short term followed by a decent downturn. Well why do I feel like this? For one – there are a lot of people that were sitting on sidelines – the retail and likewise who can now see that a stable govt is it and start investing. That should help us a good 10-15% upswing – or the continuation of the rally upside. But then at the end of the day someone has to realise that there is now no uncertainty – where good news is one of the option. To say that the worst is over may be too premature. The jobless data, housing, projected global growth or what ever – they say that we have hit the bottom of the bad news – but that does not in any way mean that the good news is on its way. It will take a long time for the markets to recover to make any substantial highs – and we may enter a real consolidation phase where we remain in a narrow band for some time to come. All the same the Indian markets should ideally outperform and we should see good money flowing in now.

As far as the candles are concerned – we are firmly above all the EMAs and above the trend line that most of us would have drawn starting march 12th. We have not so far dropped below the middle of the Bollinger bands. The volumes seems to be okay. ADX is bullish but the ADX line as such continues to show negative divergence. MACD is still showing a beginning of a bearish mood. RSI is bullish with negative divergence. The TRIX is looking down. Slow stochastic was on its way down but has turned back and become bullish around the 50 marker.

Today’s trading – as far as input is concerned – everyone is expecting a 200+ opening on Nifty. I am at a loss of words and will not join the crowd even though it can be a reality as I feel the retail will be led to be bullish. Afterall someone has to be culled at the end of the day. The Pivot data goes something like this: -

R3 3775
R2 3740
R1 3705
Pivot 3651
S1 3616
S2 3562
S3 3527
Projected High Range 3678 to 3723
Projected Low Range 3649 to 3604

Fib Projected high 3710

Fib Projected low 3572

I will skip option data since it is today and subsequently that I am expecting to see a sea change so will see what happens today. Best of luck and May you make a lots of money.

Turbulence ahead… Update for 14 May

The market stands awaiting the results of the elections. With each news – the hope and fear alternates and that is how the market is likely to react till the time the certainty of the Party that has to form govt is known. The news as of now shows no clarity on the issue. and the exit polls have the dubious reputation of being wrong by a margin at times. The global markets continue bleeding meanwhile as the news from the US retail sales and the foreclosures is not good and the hopes of an early recovery from this recession are dashed.

On the global front the Nikkei ended 41 points in green that is 0.45% up, Hang Seng was half a percent down and Strait times was 7 points or 0.33% in green. In Europe FTSE was a drop of 2.13%, Dax down 2.61% and CAC down 2.42%. US opened red and then closed at one of the worst levels for the day Dow down 2.18%, Nasdaq down 3.01% and S&P down 2.69%. No good news on this front either.

Coming on to the charts – I am sorry to say but the bad news continues. The candles had left the upper end of the Bollinger Bands a few days back and seems in no hurry to hug the upper band now.The volumes seem to be shade higher than yesterday. ADX continues to be  Bullish with negative divergence. MACD is bearish and the RSI is bullish with negative divergence. Slow Stochastic is bearish. TRIX is looking down. With all these indications topsy turvy the volatility is likely to continue.

The Pivot data is as given below…

R3 3808 against 3848
R2 3750
R1 3692
Pivot 3651 against 3635
S1 3593
S2 3552
S3 3494 against 3422
Projected High Range 3672 to 3721
Projected Low Range 3696 to 3647

I guess that – this should be all – the markets are likely to to take more cues from the election results than anything else. So I will pen off now.

Trading RSI

I had a query raised by vasanihitesh on http://stockezy.com/opinions/2416/The-Noises--Update-for-08-May-09/ . Since I seem to have some time on my hands I will attempt to answer the question as well as I possibly can. The query was “Can we get buy/sell ideas from RSI data..?”

RSI like MACD is and oscillator -- Meaning that it oscillates about a mean to two extremes. An oscillator is called a leading technical indicator which fluctuates above and below a centre line and normally has an upper band and a lower band that would ideally indicate overbought and oversold zones. 

The indicator indicates accomplishes this through a formula that compares – basically the size of recent gains for a particular stock or financial instrument  to the size of the recent losses. The results thus plotted fluctuate between 0 and 100. There are bands placed on the upper end above 70 and on the lower band below 30 that are related to extreme overbought and oversold conditions.

There are three ways how the RSI is used to trade on the markets. At this point please do remember that no one indication can tell you exactly how and when to trade. All indicators are to be taken with other indications and the markets themselves.

 The first way the RSI is used to trade is seeing extreme over bought or over sold zones. I have inserted an example of ICICI bank behaviour in this march. It was in oversold territory this march and then the recovery started. The recovery has been pretty smart till now. If you now observe the ICICI bank is flirting with the overbought territory and it would be interesting to see how the next few days/weeks pan out.

 The second way the Indicator is used for trading is Centreline crossover. That means that when the markets cross the centreline the positions are built – either bearish or bullish depending upon the direction of the crossover. In the example you see that as the RSI crosses over from below the 50 marker to above it – the stocks takes cue and then goes higher. This crossover happened in the third week of March for L&T.

The Third manner in which the RSI is used for trading is Trading RSI Divergences. Hey I have been shouting Divergence on our charts for quite some time if you have noticed. The divergence means that the Markets are making new highs and the RSI is not making new highs or Markets are making new lows and the RSI is not making new lows. I will give and example of this that I have given before – see the Nifty. It made new highs in Jan last year and the RSI was not moving in consonance with the markets – let us say in other words The RSI was not sharing the enthusiasm of the markets. That led to a fall. And very sharp one that is.

I would end now by trying to rub in the fact that no single indication can give you an indication and you can trade it. You have to perhaps take multitude of factors and keep them in the mind before you can trade. Out of the three conditions we have two of them in front of us at this very moment and it would be nice to test our trading by RSI. The second aspect is that RSI may generate a sell or a buy signal – but it may take a long time for the markets to follow it. Where we go wrong perhaps is that we want instant gratification. We go short thinking that the markets are overbought – well if we are in a bull run then the markets can remain overbought for a considerable period of time – disgusting us out of the markets and the trust of the indicators. So best is – do not trade time bound instruments from short term perspective using RSI – you can perhaps buy stock and sell stock using this indication and not futures and options. All the same the indications are a truth and the markets do tend to reward if we follow a methodology using whatever tool we have. In army we often say – it is not the machine that lets you down… most of the times it is the man behind the machine that is incapable.

Hope that this effort of mine will make someone of you a millionaire.

Cheers !!

Update for 13 May 09

We would be doing something right – or perhaps something wrong – the markets are unstoppable. Do the markets know something that we do not know? Like there is a party coming to power with absolute majority? Or perhaps that the Oil is about to go down to 10 bucks or something – after all there has to be something that we do not know. The market do know a lot of things perhaps – but what is my next big question. At a time when all the global markets are tumbling away to glory – we defy every rule in the book and continue touching new heights. Are the results already out? Well I will rely on some one else to give us a fundamental touch and will continue with the technicals. Just one thing before pouring the charts out – both the FIIs and DIIs bought 452 and 171 Cr worth respectively.

As far as the global cues were concerned that weakness is there. More than weakness perhaps the doubt to catch a trend is there – afterall the run up has been for quite some time now. In Asia Nikkei was in red – down 1.62% but Hang Seng after opening red, going green, dipping red again closed finally flat at 0.38% green. Strait Times too was green at 0.56% up. Europe opened red – went green and ended flat with negative bias. FTSE was red 0.22%, DAX red with 0.26% and CAC down 0.54%. US started its day in green but immediately slipped red on profit booking and now past mid session is still trailing red. DOW as of now is down 0.21%, Nasdaq down 1.54% and S&P down 0.9%. There is still some time to go before they close so really it would be difficult to take a call – but the markets are perhaps giving an indication of trying to recover.

Okay before I begin with the charts. I would wander in the realm of unsurity. I will make a statement that may be wrong and would welcome if I am or can be corrected by anyone on this account. The Purist followers of 315 strategy would say that this is the third indication to pyramid their holdings – meaning build one more long. I had earlier on may 5th had said that there is an indication by the candle to exit longs (not equal to go short). If this is the third indication of Pyramid then obviously I was wrong on what I said about 5th. It would also follow – for the purists I mean that this is the last time they Pyramid and there will be no long build up till the Exit longs would figure out on the charts. The candle today was tall and white but still stood short of trailing the upper Bollinger bands. The volumes were also somewhat higher. We have as per the Trailing EMA lines a perfect run up. ADX negative divergence however continues unabated. Hey it is still bullish though. MACD some how shows a negative divergence inspite of the market ending so much up in green. RSI is bullish and I will not talk about the RSI divergence as neither is the market off to a new high – nor is the RSI to a low – but the Negative divergence as I drew yesterday is true and continues. Slow stochastic is still bearish. I really do not know what are we or what are the markets trying to prove. The TRIX too looks down. The fact is that the technicals are not supporting the bullish sentiment as the markets go forward. If I were you – I would be very, very, very cautious. This has the build up of washing away a lot of your hard earned money without giving you a reason. Today I have done something else – I have also pulled up the chart of reliance. I am posting the same. It is in some ways mirroring the Nifty chart – have a look.

The Pivot data is something like this----

R3 3848 against 3786
R2 3792
R1 3736
Pivot 3635 against 3582
S1 3579
S2 3478
S3 3422 against 3379
Projected High Range 3686 to 3764
Projected Low Range 3617 to 3539

The Fib Numbers are High of 3733 and low of 3491.

The option pain and the Put call ratio is as in the charts. Hope we continue this path of the upswing – but be on your guard.