INVEST AND TRADE STOCK MARKETS

Nifty moving out towards 5400

2011-10-27T04:32:00.000-07:00

I think its time for me to eat my own words. As wrote by me in the previous post wherein I quoted that breaking past 5250 looks quiet impossible for Nifty seems to be going wrong. Nifty might break past 5200 and have a go at 5400 wherein lies the 200 days SMA (Simple moving average). The change of attitude is due to the moments in the Dow Industrial average which has just tested the 200 days SMA (Simple moving average). Leaving apart the Hangseng index of the Hongkong, all the other world stock markets seem to be moving out of the rangebound movements they experienced in last 3 months. But any chance above 5400 seems quiet dim this year. On the other hand its quiet likely that Nifty might still not break past 5200, but it’s the least probable scenario. So then how to trade?

Nifty 5000 PE (Put European) Option quoting at 52/- while Nifty 5400 CE (Call European) quoting at 47/- could be bought in a pair making a cost of around 100/-. If the Nifty hits 5400 in the next 5-7 days, 5400 CE could be sold out at 130 or so, this is because Nifty 5200 CE (Call European) is currently quoting at 139, if Nifty moves up by 200 points, 5400 could be at strike and could be fetching around 130. At that point 5400 CE could be sold off and we could wait for the Nifty to yet again correct by some 200 points and Nifty 5000 PE then could be sold off at around 30/-. The whole deal could fetch you more than 50% returns in just a matter of half a month.

On the other hand if Nifty breaks down by 200 points then it would be ideal to square off Nifty 5000 PE at around 100/- and wait for Nifty to bounce yet again at 5200 so that Nifty 5200 CE could fetch around 25/- the whole deal could yet again fetch 25% returns. Lastly if nothing of this sort happens the premium might drop by some 13-17 Rs in the next 8 days, at which point it would be an exit point with around 20% negative returns.

2011-10-23T08:52:00.000-07:00

The 20 days Simple moving average (20 days SMA) and 50 days Simple moving average (50 days SMA) for Nifty stand at 4977 and 4997 respectively. The 50 days SMA is above the 50 days SMA and the 100 days SMA which is at 5253.

Nifty is most likely to maintain above 20 days SMA for a minimum 7-8 days while breaking past 100 days SMA i.e above 5250 also seems impossible. Not the right time to buy Nifty options, its better to let the market hit 5200 first.

Investment in BSEL Infrastructure can double your money

2010-03-10T01:19:00.000-08:00

As can be seen from the chart BSEL Infrastructure deflated from 55 to below 10, investors who bought in at 55 suffered a loss of above 80% if they exited the stock at below 10 Rs. The misery of the investors who bought in at the all time high of above 118 and are still holding it could not be expressed in words. Anyways after hitting a level of below 10 Rs, the return on investment given by the stock to first time investors who bought in March 2009 beat the return on investment which the index gave. Loss from 55 to below 10 stands at above 40 and when the stock traded at 28 in June 2009 it covered 50% of this loss. The Stock again traded in the red and almost gave away its 50% value to trade at 15 in July 2009. The stock has traded between the levels of 15 to 23 from that point onwards.

You can notice from the chart that the stock which saw a accelerated deflation of prices from 22 to 17 and 19 to 15 is slowly losing it momentum. While deflation in prices from 22 to 17, 19 to 16 took place in matter of days, A move from 17 to 15 , consumed much more time then the first three downmoves, the stock seems to taking support at 15 Rs levels and might hit 19 which would be our target 1, 23 our next target 2 in a matter of days. Since the June 2009 top of 28 has not been tested that levels could be our last target.

DLF target 340, 392 stoploss 298

2010-03-08T22:33:00.000-08:00

The accelerated speed with which DLF lost value for its investors in January has began to diminish in February. Selling by investors seems to have lost momentum and value buying seems to be emerging. Buy DLF with stoploss 298, first target 340 and next target 392. At 340 return on investment stands at 9% while at 392 return on investment is above 25%

European markets headed for small correction

2010-03-08T02:22:00.000-08:00

European Markets have given handsome gains to the investors on the hope that fiscal deficit problems in the Greece would be sorted out by the European Union members. The British Index FTSE has been leading from the forfront and gave more than 10% returns on investment to the investors who bought in the February 2010 lows of just above 5000. The bulls have enjoyed there time and now it might be the time of the bears to enjoy a little bit or there might be atussle between the bulls and the bears while the index consolidates. Looking at the charts, the opinion is that 5650 might be the resistance for FTSE in the coming 8 -10 days and it might trade towards 5450 in the coming 8-10 days.

A bet that FTSE will not touch 5660 in the coming 7 days would return 2 Dollars for 1.19 Dollars invested as of my writing, on the other hand a bet that FTSE will trade through 5500 in the coming 7 days would return 2 Dollars for every 1.06 Dollars invested. You can visit betonmarkets to open an Account.

Investment in RNRL - short term 15% gains possible

2010-03-07T01:30:00.000-08:00

RNRL buy at current levels, stoploss 62, initial target 70, next target 77

The stock tested the levels of just above 60 in November, traded sideways for the next 3 months with the investors undecided about the future of the stock. Global financial turmoil due to happening in Greece led to lowered risk appetite towards risky investments. As the Sensex tested its 200 DMA, the stock too broke from 75 and tested the November lows. The stock could be bought at current levels with a stoploss of 62, first target would be February high which means the investors could bid the stock at levels close to 70 and if the investors still hold onto the stock the price could further enhance upto the levels of 77 which is the current year high, the rate above which the investors did not bid the stock this year uptil now.

The target of 70 could be achieved within next 5 days, return on investment turns out to be above 6%. Next target of 77 could be achieved by mid April, return on investment above 15%.

ICICI Bank in uptrend could target 975

2010-03-06T02:41:00.000-08:00

ICICI Bank has breakout above 850 after trading for last 1 month between the range 800 to 850. So 850 now stands as a support which might not be broken for the next atleast 10 working days unless and until some very bad news strikes on the global front. There might be some consolidated trading between 885 and 915 for some 3-5 days and then we might see the investors demand for the stock pulling the price of the stock towards 975 within the next 15 working days. A trade in the region of 885 to 890 could be used to invest in the stock with a short term view of 20 days. If the stock trades at 975, a 10% profit on investment could be booked.

Buy Nifty Put Options

2010-01-26T23:12:00.000-08:00

Nifty likely to trade at 3900 by March 2010 end, this would also be 50% correction to 2800 points rally from 2500 to 5300 we saw in the Index. 4500 put options for February expiry costing 38 Rs as I am writing can trade at 110 and above if Nifty drops to 4600 within next 7-8 days, and if Nifty trades at 3900 (very less probability) in February itself, your investment in Nifty 4500 PE can return 20 times initial investment. Target of 3900 is not just based on 50% correction theory, many other technical as well as fundamental indicators have constituted in arriving at the price, you too can learn this, for details contact click_dotcom@rediffmail.com

Short Term Call - Sell Hero Honda

2010-01-26T21:31:00.000-08:00

Sell Hero Honda for a target of 1250 with a stoploss of 1650, target could be achieved as early as February end. If stoploss hits a loss of 100 while if traget achieves 300 profit, risk reward ratio stand in favour of taking the position

Fractional Reserve Banking and Money Creation

2010-01-17T00:43:00.000-08:00

Fractional Reserve Banking

We all do have deposit or saving account at the bank, and we can withdraw as and when we require funds, but in general not everybody would be asking for money at the same time. When a person A is withdrawing money from ATM, a person B might be depositing cash in his account, in short if a bank is holding 100 units of depositors money on day 1, in all likelihood it would be holding 95 -105 dollars on day 2. Which means if the bank keeps 5 Dollars aside, it can loan the spare 95 dollars to a credible borrower and earn some money as interest. Warehouse which host our goods are in a way similar to the banks in guaranteeing the safety of our goods just as the bank do guarantee our money, but while warehouse charge us for safekeeping, banks pay us for maintaining our deposits at bank. The concept of Bank lending depositor’s money, while keeping a fraction of it is called Fractional Reserve banking.

Fractional Reserve Banking and Money Creation

Client A1 of Bank A just received a cheque worth 1000 units of currency; he deposits the cheque in his account at Bank A.

Now Bank A has 1000 units of currency in its kitty to loan its clients (for the time being forget all the other funds its holding in the accounts of its clients), if the reserve requirement is 10% Bank A has to keep 100 units of currency aside and can loan the remaining 900 units of currency.

Client A2 of Bank A applies for a loan, A2 wishes to purchase an asset worth 1000 units from B1, Client of Bank B. A2 is summoned by Bank A and asked to deposit 100 units of currency as an initial capital while the bank would lend the remaining 900 units. A2 obliges, and the Bank draws a cheque worth 1000 units, drawn on itself payable to Client B of Bank B.

Now Bank A is holding 100 units of currency in cash, it owes Client A1 1000 units while it is to receive 900 units of currency from Client A2 (excluding interest), if Client A2 defaults it can sell the mortgaged asset.

Client B1 of Bank B who has received this cheque deposits it in his account at Bank B, Bank now has 1000 units of currency against which no loan has been issued till date, keeping side 10% it can lend the remaining 900 units. Bank B accepts the loan proposal of Client B2, the Bank asks the client to deposit 10% of the asset value to be financed while it would loan the 90%. Since the asset value stands at 1000 units of currency, after receiving 100 units Bank issues client B2 a cheque worth 1000 units.

Now Bank B is holding 100 units in cash, the bank is liable to pay 1000 units of currency to Client B1 while client B2 owes 900 units to the Bank. In case of default the Bank can recover the lien amount by auctioning the lien asset.

Client A3 of Bank A receives the cheque from B2 and deposits in his Bank, now the Bank holds 100 + 1000 i.e 1100 units of currency against which it has not created any loan, and it can loan 90% of it while it has to maintain 10% as reserves. Bank believes that Client A4 is creditworthy and clears his loan proposal for financing the purchase of asset valued at 1000 to be purchased from Client B3 of Bank B, the Bank loans him 900 units while the client himself adds 100 units.

Bank A can now fulfill cash requirements upto 200 units, Client A1 and A3 both are assured that there funds are safe with the Bank, there total claim on Bank is 2000 units, they both can individually issue cheques worth 1000 units or can swap there cards to finance purchase upto 1000 units. The bank has a claim of 900 units of currency on its two other clients A2 and A4

Client B3 rushes to his bank and deposits the Cheque, Bank B is now enriched by 1000 units of deposits in its account against which no loan has being issued, Bank sanctions the loan proposal of Client B4, the client deposits 10% of the asset valued at 1000 units, Bank issues the Client Cheque payable to Client A5 of Bank A.

Bank B now has a cash holding of 200 units, Client B1 and B3 both are confident of the safety of there funds to the tune of 1000 units withheld in there bank accounts. The Bank itself has a claim of 900 units on its other two clients B2 and B4.

Client A5 deposits the cheque in his bank account, now the bank as 1200 units of currency as deposits of its account holders on which no loan has been made. The Cash received by Bank A as deposits was just 1000 units, but now total money in the Market is 5000 units of currency

1000 Client A1

1000 Client A3

1000 Client A5

200 Bank A Cash holding

1000 Client B1

1000 Client B3

200 Bank B Cash holding

Total 5400 units of Currency

100 Client A2

100 Client A4

100 Client B2

100 Client B4

Total 400 units of currency

So the Bank A along with Bank B has now created 5000 more units of electronic currency, The banks can create infinite amount of currency as long as some asset is kept lien to finance the loan and the receiver of the loan is holding some funds which he can use as down payment for financing the asset. If the Bank finances 100% of the asset then the maximum amount of newly currency would depend on the reserve requirement. If the reserve requirement is 10%, the Banks can create 10 times the initial money supply, if it is 5% then 20 times the initial money supply could be created.

Working

Client A1 issues a cheque worth 300 units of currency to Client B2 of Bank B, If Client B1 of Bank B at the same time issues a cheque worth 300 units of Currency, the two cheques cancel each other. Payment Cheques received by Clients A2 and A4 of Bank and B2 and B4 of Bank B be cancelled to the extent of there EMI’s. If Bank A doesn’t have enough funds to meet its requirement it can borrow funds from other banks or the central bank which is the lender of last resort.

Hang Seng to trade 21000 or 22500 in next 7 days

2010-01-13T23:48:00.000-08:00

Investors in Hangseng Index are in a confused state of mind for the last 3 months. Whenever the index trades near 23000, investors holding the view, central banks would not let the inflation turn into hyperinflation exchange the index for cash. On the other hand breakdown towards 21000 attracts the investors sitting on sidelines. The chart shows that approximately within 15 days Hangseng moves from 21000 to 23000 and then a cycle is completed by Hangseng dropping to 21000 in the next 15 days.

Betonmarket offers various products through which we can make money if the above mentioned turns into a reality for 4th consecutive time. We can place a bet that within next 7 days Hangseng will either trade at 21000on the lower side or at 22500 on the higher side, this bet can fetch us 2 USD for every 1.2 USD invested. This bet is a type of Boundary Bet and it is called Breakout Bet.

The other variants of this bet are

One Touch

This means the index should touch a specified target pre decided by you within the expiry period , the larger the difference from current price, the more you stand to gain. If the index doesnt have a shave with your target you lose your initial investment

No Touch

This means the Index should not touch a specified target, obviously decided by you, before the expiry of the bet. If it does you lose money.

Barrier Range

For a successful execution of this bet, the index should trade within the specified targets till the expiry period, if it moves past the specifies range you lose your money.

There are also Expiry bets and Double bets which I would explain later

Can your Investment gain 2000% within a month?

2009-12-28T03:30:00.000-08:00

I am not from Zimbabwe to say that my investment of 1 dollar (Zimbabwean Dollar) at the start of the month would fetch me more than 21 dollars at the end of month, nor this is published from the book authored by me from a mental asylum. Also this can happen when most of the asset prices you see around you have seen a cut in prices increasing your purchasing power too. This is possible due to a Financial Instrument called Option, It is a form of Derivative (a thing which derives its value from something else, which we call underlying asset), there are two variants, a Put Option (PE and PA) and a Call Option (CE and CA), when the prices of the asset deflate, investment in a put option on that asset is profitable while when prices of an asset inflate, investment in a call option on that asset inflate. Now here are some examples wherein you could have seen your investment grow by 2000% in just a matter of some days if you would have being able to identify the trend before hand by using technical analysis, If you want to learn all this subsribe through paypal buttons at the top of the page, for any queries you can contact click_dotcom@rediffmail.com.

A Put Option Contract on Nifty having a strike price of 3800 and set to expire to 30th October 2008 was quoting at a day low price of 53/- Rs on 22nd September 2008, on 24th October 2008, the same 58 Rs invested were attracting buyers at a day high price of 1298.8/- Rs.

A Call Option which gave the holder, right to buy Nifty at 4000 until 28th May 2009, was quoting at 12/- Rs on 28th April 2009, when the markets opened on 19th May 2009, the same investment could be exchanged for cash at a price of 572.85, which was the day high for the contract.

An investment made in Nifty Put Option for 31st January 2008 Expiry having a strike price 5700 would have cost you 28.1/- Rs on 15th January 2008, if you would have purchased it at that days low, the same investment could be offset for 1310/- Rs on 22nd January.

3/- Rs invested in Nifty Put Option having a strike price 3200 and expiry date 25th April 2006 would have made you rich by 317/- Rs on 22nd May 2006

Gold, is it a Candidate for Investment?

2009-12-27T06:45:00.000-08:00

Like any another Commodity, prices of precious metal Gold depend on demand and supply, when the prices of Gold move up from say 1000 dollars per ounce to 1200 dollars per ounce, it means that earlier 1000 dollars invested were sufficient to buy 1 ounce Gold, but now an investment of 1200 Dollars can let you own 1 ounce.

Now if we consider investor demand for Gold has not changed then

Either the informed investors are betting supply of Gold would be reduced against the number of dollars likely to float around the world in future and have bought Gold in anticipation.

Or The informed investors are betting that there would be a huge supply of dollars in future which the supply of Gold would not be able to match up, loaded with dollars the investors would be bidding up the price of Gold, in anticipation of the future Informed Investors have bid up the prices of Gold

Looking at the charts, we get a picture that for the 2 years between 2007 and 2008, new investors buying the gold and old investors selling the Gold were equally placed in a price war and whenever new investors got a hold of Gold at near 860 dollars they would buy the Gold while whenever the prices rushed above 970 dollars, old investors would sell to book profits in there investment, A small period of 2-3 months between september to november 2008 saw sellers gaining an upper hand, new investors seemed as loosing patience and triggering stop loss, prices crashed unto 700 Dollars an ounce, but the introduction of TARP (troubled asset relief program) in october 2008 saw the informed investors bidding the prices of Gold above the previous high of 1040 dollar.

Looking to invest in Gold, wait for your desired investment target to witness a price of 970 Dollars, or the other way round cross the previous 2009 high, there are many ways (fundamental and technical) through which you can zero in on the price to invest in an asset and then book your profits and exit from the asset, also you can leverage through options if you have worked out and know exactly the time by which you expect your investment to reach a level where you can book profits, I have shown you the most basic identifications, if you wish to know the advanced ways subscribe through the PayPal link given at the top, for further queries, write to click_dotcom@rediffmail.com

CAN POSITIVE RETURN ON INVESTMENT IMPLY PROFITABILITY?

2009-12-25T01:54:00.000-08:00

If you invest 100 Dollars and get 120 Dollars after 5-7 years is your investment really profitable, what a stupid question, read further on and it might not be the case.

Mark (frictional), a resident of New York, a normal person just like you and me had a dream of having a home of his own in the city, but his savings were not enough for him to materialize his dream, credit or borrowing were not the words present in his vocabulary, so he decided to stay off in his rented home and being a risk averse, invested his funds in US treasuries at early 2000, nominal house prices prevailing at that time were $225000, The collapse of the Nasdaq boom made sure he did not have to curse his decision, but while the Nasdaq lost its 70% and Dow Jones lost its 20% value by 2002, the housing prices just refused to retreat, and Mark decided to prolong his stay in the rented home, monetary easing by the US Federal Reserve, ultra low interest rates paved the way for housing boom, nominal home prices in New York doubled and topped out at just below $500000, Mark’s dream was shattered

What is the definition of investment, it could be generalized as, to divert our excess money from our safety to a person/institution who guarantees a return more than what was originally invested, Are we God, Knops, so we can have excess money at some timeframe, but we do have expenses in future which we cant just spend on for immediately, we can have excess money which would suffice future expenses real-time, but who knows about future, so now can we generalize an investment as a vehicle which will make sure that the excess money we invested now, which can suffice for expenses on items we might require in future but we cant spend on them right now, would be able to buy all those things which we can buy now, plus add some more.

Dow Jones 1929 Correlation Current Dow Jones

2009-12-24T04:05:00.000-08:00

Investors trading the Dow Jones at 14000 in October 2008, were seen exchanging the Index for money, or the other way round money for the Index at below 7000 in October 2009, If we keep a track of Dow Jones Index from 1980 to 2008, this was the biggest negative return the Index gave to the investors in the close to 3 decades between 1980 to 2008, but the losses the investors digested in Dow Jones Index were comparatively less compared to the losses the Investors holding ETF’s of Emerging Markets had to digest, for e.g. The Sensex which stood at 21000 in January 2008, the investors exchanged money for the Index at below 8000 in Oct 2008, and if currency is taken into consideration then the loss was even for magnified as while 38 Rupees were equivalent to 1 Dollar in January 2009, the investors by Oct 2009 felt that 50 Rupees should be paid to buy a 1 Dollar worth Investment. This meant that the Sensex gave 70% negative return on investment, but still the losses made by the investors having there investments placed in stock markets could not outpace the Great Depression period losses, As during the Great Depression period the Investments made in Dow Jones Index saw loosing close to 90% of there value in more than 2 years between 1930 to mid 1932.

Now here starts our real topic, after the initial crash the Dow traced back more than 50% of its loss and then onwards the investors not owning the index could not pile up the cash or were hoarding cash instead of the Dow Jones Index, at the same time the Government policies at that time might have given the investors already invested in the Dow the willpower to hold the investment, as the investment would cut down losses and create profits, so what if the investment comes cost to cost 25 years latter. The Dow Jones traded narrowly for the next 15 years an could break past the initial cost of investment made in 1930 only 25 years latter in 1930.

Now how is the current situation comparable to 1929, If we make some adjustments then it is, Dow Jones has been trading in a narrow range for the period between 2000 to 2006, The investors who had invested in 2000 saw some profits on investment by 2007, but those who didn’t book profits by 2008 end, and then did not wish to exchange cash for index till they saw 14000 again are still holding the investments, so if we consider 2007 end as 1929, early 2009 as 1932, then by 2025 the Dow Jones could break past 14000 and it could be the time to trade between 10 to 11K for 5 years and other 10 years between 6.6K to 10K.

Nifty Day Forward (24th December, 1.35 pm)

2009-12-24T00:11:00.000-08:00

Nifty after languishing for most part of the day in the positive territory has just as of my writing dipped into negative territory, this is the 4th time in the day that it has dipped into the negative territory but has everytime managed to pull back, yesterday the nifty never gave substantial corrections to the intraday up move now and thus unless it gives some sort of correction or atleast consolidation further upmove doesn’t looks to be materializing, hence there are 4 possibilities

1) Nifty might trade as down as 5080 (35% Probability)

2) Nifty would attract buyers at 5115 – 5120 (35% Probability)

3) Nifty would rather remain quiet (15% probability)

4) Nifty would manage to trade at 5175 (5% probability)

Option Open Interest Movement and Nifty Fluctuations

2009-12-20T08:09:00.000-08:00

In the Futures & Options Month i.e From September 25th 2009 – October 29th 2009, Nifty traded from the high of 5181 to the low of 4738 and finally closed at 4750, in the previous month i.e on September 24th 2009 Nifty closed at 4986, Now lets see how the Open Interest in various Options built up, and how the Nifty fluctuate when the open interest started subsiding

1) Nifty 5100 PE Option

Nifty 5100 PE option saw the highest built up on 17th October, Open interest stood at above 37 Lakh, Nifty saw its highest closing for the month on the same day, Open interest in Nifty 5100 PE which was above 8 lakhs on 6th October saw open interest built up above 37 Lakhs on 17th October, 5100 PE saw a high price of 232.65 and a low price of 61 when this built up took place, on the other hand when the Open Interest started decreasing from 20th October to 29th October, to settle at just below 7 Lakh option interest, the Option traded between a low of 46.1 to a high of 353.05

Conclusion when there is an built up in Open Interest normally prices of the option move down and when the Open interest starts cooling down the prices starts moving up, the option tends to trade between the prices it traded when it saw open interest built up till the same level of open interest is not reached again, we can conclude the same from other options listed below

2) Nifty 5000 PE

Open Interest in this option stood at just below 6 Lakhs on 18th September 2009, the option saw the highest built up on 17th October 2009, it was above 51 Lakhs, in this period it traded between a high price of 210 and a low price of 35.05, further on the open interest started decreasing and on settlement stood above 8.6 Lakhs and the contract saw its high price of 250 on the same day, the low price in the period between 20th October to 29th October was 25.10

3) Nifty 4900 PE

On 16th October 2009 this option saw a highest built up of Open Interest which stood at above 70 Lakhs, as of 18th September 2009 this Open interest just stood at just below 8 Lakhs, in the meantime it traded between a high price of 135.95 to a low price of 19.10, when the open interest started subsiding it started gaining price and saw a high price of 150 on expiry i.e 29th October 2009, in the period between 20th October 2009 to 29th October 2009 it registered a low price of 12.10, and the open interest on expiry stood at just above 13 lakhs

In my further post I will deliberate on what the current conditions are and also how we can increase the chances of a successful trade using open interest as one of the mechanism

Can the USD and the US Markets both underperform Emerging Markets Currencies and Emerging Markets Assets?

2009-12-12T23:21:00.000-08:00

Visit any financial website, ask any financial commentator or investment guide or expert about where the Dollar is headed, there would be no debate, the answer would be unanimous, the jury would be don’t buy the dollar, don’t buy any assets having there value in dollar, you will also find that gold bulls advocating buy the gold, but don’t buy it in dollars, buy physical gold, but are the dollars fundamental so weak against every currency in the world, have the analysts forgot that while the United States might be the debtor nation of the world, it is the investor nation of the world, have you read the explanation given by these same analysts for the boom and busts in the emerging stock markets, Isn’t any rally in the stock markets explained as foreign investors dumping the dollar and running for riskier assets in the emerging markets, what about the crash, isn’t it explained as foreign investors dumping the riskier assets for the safety of the safe haven called US dollar, now who are these foreign investors definitely they are not we Indians, nor are they our neighbors Chinese, and the Brazilians who have seen there stock markets skyrocket, are definitely not looking for inflation outside, so who are they? They are the Investment banks, hedge funds, fund managers and whose funds are they investing, the funds of US citizens or developing world nation citizens, what is there share in the market capitalization of the Emerging Markets space, lets have a look at Indian Stock Market, the Market Capitalization of all the firms listed on the Bombay Sock Exchange (BSE) is above 1 Trillion USD, the biggest Indian Company by Market Capitalization is Reliance Industries and Foreign investors hold about 16.5% of the Company, ICICI Bank, its one of the largest banks, Foreign Investors hold about 35% of this Bank, HDFC the biggest home mortgager of India, Foreign Investors hold about 59% of the Companies Market Capitalization, The biggest Outsourcer of IT solutions from India, Infosys, Foreign investors hold about 36% of Infosys, Except the PSU’s like ONGC, BHEL, NTPC which together have around 20% weightage in the Sensex and public shareholding is just about 20% and hence the Foreign Investors holding is quite low, most other largecap and midcap companies have more than 15% of there equities in possession of Foreign Investors, If we take 15% as an average estimate of Foreign investors holding in India’s Market Capitalization, Foreign investors hold about 150 billion USD equity assets in India.

Now the Foreign Investors are not just investing in India but all over the world, if we take the average estimate as 15% market capitalization of emerging markets is hold by foreign investors, then lets calculate how much the Foreign Investors hold, China and Hong Kong have market capitalization of around 2 Trillion USD, Korea has total value of equities on its bourses as 1 Trillion USD, Brazil has market capitalization of around 1 Trillion USD, also a point to be noted here is that the total market capitalization of the World might be standing close to 50 Trillion Dollars and out of that close to 40% would be contributed by emerging markets, so around 20 Trillion Dollars is the total market capitalization of the emerging markets space and 15% of that is hold by US and developed nations citizens so around 3 trillion USD is what the US citizens can get if they sell all there holding in the Emerging Market space.

According to http://en.wikipedia.org/wiki/United_States_public_debt China with 800 Billion USD is holding 23.35% of the total US Foreign debt, which means The United States owe the World around 3.3 Trillion USD, while they can recover near about the same amount if they sell there assets all over the world, So its not just that United States is Fishing in troubled waters, All the World is fishing in the troubled waters, albeit US is in the drivers seat so in fact it knows beforehand when the vehicle is going to crash, now I am not telling that the USD wouldn’t crash, I am just suggesting that USD wont crash with the Emerging Markets Stock Indices rallying, it could be like the USD crashing and the Dow Jones Index gaining 2% while the Emerging Markets Index rally 1%, why because If US Federal Reserve prints money, The USD would crash, The US would face inflation, and inflation more than what the world would be facing, which means the US assets would be inflating more than the assets round the world, which means investors in search of more returns on there investment would park there money in US assets while dumping the Emerging markets space. Summing up don’t dump the USD and the US assets at the same time.

How to trade index and stock options of December expiry?

2009-11-29T01:08:00.000-08:00

DLF seems to be quite bearish as the real sector seems to have lost favor with the investors, inspite of property prices not dropping to a bigger extent in India as compared to the globe. But would the downtrend achieve its target in short frame of time, to give profits on investment in put options, DLF could trade at 310 and if possible dip to 260 by the year end, with a stoploss at 372, a short sell position could be initiated in this stock, if 310 is considered to be the target the risk reward ratio doesn’t justify disinvestment in DLF, the option contracts of december expiry seem to be quite expensive as the 310 PA is trading at close to 9.5 Rs, the strike price 310 is more than 11% out of the money and the premium stands at close to 3% of the Last Traded Price of the stock.

ONGC is another stock whose charts give a feeling that distribution is underway, should the stock not have bidders above the price of 1190 and generate enough sell orders to have bid prices even below 1120, the stock prices could weaken further and by the year end a bid price of 972 on the stock could find a place in the best 5 buy orders, so keeping a stoploss of 1190 the stock could be sold and the square order could be 1000 or below. The options on the underlying stock dont attract traders and as such is hugely illiquid, The December expiry contract with a strike price of 1050 which has the last traded price of 12.25 is trading at a fair value, if the downside target of 972 turns out be the Last Traded Price for the stock on any day upto 31st December, the 1050 PA could be offsetted at 80 Rs/-, close to 500% return on investment, The lot size of the contract is 225, so the total cost of investment stands at below 3000/-

NTPC just like ONGC is in a distribution phase, if the stock continuously attracts supply from the distributors so that there is no bid for the stock at a price of 209 which is just 0.5% away from the current close, or if this seems to be a quite close call, the best buy order on the stock, if it is not able to surplus 213 then the scarcity of the buyers might see an investor bidding on the stock for just above 190 or even 182 by the year end. The December expiry Put Option on the stock for the strike price of 200 was last trade at 2.5, which is a fair price if the stock opens without change on Monday, the investment of 4000 as the lot size of the contract is 1600 and can make the investor double happier as the investment could return double the initial investment if the scarcity of the bidders see the price plummet to our initial target of 192.

Options on Stocks are illiquid, hence utmost care should be taken while executing them, I am advising mostly sell as the Nifty looks to be in a distribution phase, after the initial euphoria which saw the index give more than 75% return to the investor who invested at March 2009 low which was the testing of the October 2008 low, the velocity of bullishness is decreasing although the index is making new highs after the smaller corrections of 5-12%, so the index might (if the history repeats itself) atleast correct 50% of the March 2009 to the October 2010 gains, 50% of 2500 to 5200 stands at 1350 which means investors might bid for the stocks composing the index in such a way that the Nifty Index on the trading terminal reflects the value of Nifty to be at 3850 in the coming time, The stocks composing Nifty index could not find sufficient investors bidding at higher prices and the stock market had to be closed for 1 hour in May 2004 due to the index hitting lower circuit, the lack of investors bidding saw the history repeat itself in May 2006 and January 2008, could we have one now again or in January 2010. If the investors don’t bid the stocks composing the Nifty index in such a way that Nifty trades above 4988 (or 5200 the next stoploss) then the deficiency of buyers in the stocks composing the Nifty index could see the index trade at 3850 by the year end or the first month of the next year.

Correlation between Stock Market and Currency

2009-11-28T02:14:00.000-08:00

I had mentioned in my earlier post http://niftywhatcanhappen.blogspot.com/2009/11/stock-market-and-currency-movement.html that we would analyze how Deflation in Japan had an effect on the Japanese Currency Yen, so here it is.

The Japanese Nikkei traded at 2000 in 1971, at that time 30 Japanese Yen sufficed to buy 1 US Dollar, by 1990 the Japanese Nikkei went to trade at 40,000 but now you must be expecting that the 30 Japanese Yen invested could buy more than 1 US Dollar, contrary 158 Japanese Yen were required to buy 1 US Dollar, that means the theory that strong growth lead to strong returns on investment in stock markets which leads to strong currency are completely wrong, as when the Japanese stock market gave 2000% return on investment in the period between 1970 to 1990 for an foreign investor, the Japanese yen cut 500% from that investment, now when the Japanese Nikkei reached its life time high in 1990, the Japanese Yen too reached its lowest against the Dollar in 1990, When the Nikkei went on to trade at 15000 in 1994 i.e when it was losing more than 50% of its lifetime high, 84 Japanese Yen were enough to buy 1 US Dollar, i.e while the Nikkei was losing value, the appreciation in Japanese Yen saw to it that a foreign investor was loosing money at a smaller pace than the domestic investor, Cut to 2008 – 2009 when most of the Emerging Market Currencies are loosing there value against the US Dollar while the Stock Markets are appreciating, It is the Japanese Yen which has reached its 15 year high against the US Dollar while the Nikkei is taking drubbing.

Now let’s see the correlation between the Dow Jones with the US Dollar and Nikkei with the Yen. Dow Jones traded at close to 1000 in 1970 and by 1990 it traded at just 3000. But while the local investors in Japan can say that there Stock index gave more return on investment then their counterparts in United States (well that might also not stand true if real inflation adjusted return on investment is taken into consideration) this doesn’t stand true for the foreign investors because while in 1970 close to 70 US Dollars needed to be invested to buy 1 Japanese Nikkei (70*30 = 2000, the value of Nikkei), in 1990’s the number of US Dollars invested to buy 1 Japanese Nikkei stood at 250 (250*160 = 40,000) i.e in Dollar terms the Japanese Nikkei just appreciated 300% same as the US Dow Jones, so from an US investor perspective the return on investment which the Japanese Nikkei gave was the same as the Dow Jones in his own local markets was giving. Thus an investor doesn’t earn more money in investing in foreign assets as even if the foreign assets appreciate more than the local assets the inflation in the foreign country sees to it that the currency depreciates against the home country currency.

Time to Trade Nifty

2009-11-26T23:06:00.000-08:00

Time to invest money (I mean invest in the dininvest) in the Nifty Put Options, once in a year or two opportunity has came, Invest your money in Nifty deep out of the money puts and wait for the market to fall, Nifty target is 3900 and it might be achieved by December end itself, if you can risk 2000 Rs buy Nifty 4200 Put at close to 35 - 40, if you can risk 4000 Rs buy Nifty 4500 Put close to 75 - 80, both can if the target achieved settle at 300 and 600 Rs respectively which would mean a return of over 700% on ivestment. I am now busy in my trade would update later.

Intraday and Short Term Trading Calls

2009-11-24T23:09:00.000-08:00

Bharat Heavy Electricals Limited (NSE Code – 438, Symbol – Bhel) CMP 2245 could be sold intraday with a stoploss 2258 target 2222, Bhel is also a short term sell, BHEL if it trades below 2280 could be sold for a short term target of 1922, the target could be achieved within 30 - 40 days so one can create the trade through Options also, Bhel is not a liquid stock but if the expectation of Bhel trading at 1922 is achieved the Bhel PA OPTISTK i.e Put Option with contract expiry date of 31 Dec 2009 and strike price of 2130 which has last traded price of 31 could be bought in a range of 33-36 which is a fair price if Bhel is trading in the band 2245 – 2255, The lot size for the contract is 150 so the total investment stands close to 5000/- and if the target is achieved the Put Option would be trading at 210Rs, return on investment would be 600% which is quite good. The risk in disinvesting in Bhel through Put Option is that Bhel being not an active stock in Options trade stoploss could not be executed, if you need to place any.

Reliance Communications (NSE Code – 13187, Symbol RCOM) might breakout in the either direction, if it moves up and above 183 which is quite big a resistance then it’s a buy with a short term target of 238 while if it is not able to clear the resistance of 183 in the coming 4-5 days then one can sell it for short term target of 131 and stoploss above 183, trading in RCOM through the option route is not viable idea as Options in RCOM are considerably costlier while the underlying stock is not showing that much volatility. For example RCOM Call Option with a strike price of 190 and expiry date of 31 Dec 2009 is currently trading at 5.8 Rs which means a Call option which is 10% out of money is demanding 3.5% of the Current Stock Price as a premium, on the other hand put option with an expiry date of 31 Dec 2009 and strike price of 160 Rs is trading at 4.7 Rs which is quite a high premium.

Educomp seems to be breaking down and once it moves up to trade at 805 or consolidates just below 780 in coming 2-3 days, one can sell it for a short term target of 578, Once the Stock trades close to 800 or above 780 in 2-3 days one can initiate a short position in the stock through the Options Channel, One can invest money in the Put Option PA of Educomp, The contract should be of Expiry date 31 Dec 2009 and the strike price should be 720, The fair value would be close to 7 Rs, the lot size is 375, so the investment would stand at close to 2500 Rs, if the target is achieved the Option might trade at 140 Rs i.e 20 times the investment price.

Stock Market and Currency Movement - Indian Perspective

2009-11-23T00:12:00.000-08:00

On July 25, 1990 Sensex touched a milestone mark of 1000, 17.5 Rupees sufficed to buy 1 Dollar at that time, Sensex seemed to like to be a deer chased by the tiger i.e investors and Sensex touched the magical figure of 4000 just at the arrival of the spring i.e in March 1992, a whopping gain of 300% in over just 18 months, but contrary to the mass opinion that gains in stock markets lead to gains in currency as foreign investors would be lapping the listed equities at whatever price they get, the Indian currency Rupee depreciated against the Dollar and against every 28.37 Rupees 1 Dollar could be bought in March 1992, The Indian equity markets opened for the Foreign Investors in 1992 and celebrating the event the Sensex rallied from 2000 to 4000 from January 15, 1992 to March 30, 1992 i.e 100% within 2 months, your guess is my guess, you must be expecting that rush of the foreign investors pulled the markets and so Rupee might have appreciated against the Dollar, but contrary to our opinion while in January 1992 25.86 Rs fetched 1 Dollar, the rush of the foreign investors could not the stop the rupee from depreciating and 28.37 Rupees by an Indian Importer could purchase goods worth 1 Dollar, i.e while foreign investors were lapping Indian Equities they were hedging there positions by going short the Rupee and buying Dollars, or there were many other traders who were shorting the rupee and going long the dollar.

Stock Market and Currency Movement - Indian Perspective contd

2009-11-23T00:09:00.000-08:00

The economic liberalization led to growth and India started having a place in the top growing countries of the world, Big time Fund Managers with billions of funds at disposal started mentioning India as one of there favorite money parking destination, again the facts about the movement of the currency don’t match the theory the analysts have on movement of currency, while India was growing the Indian currency was depreciating against the dollar and by January 2000, 43.58 Indian Rupees could fetch 1 Dollar, in the meantime Sensex which was at 4000 in 1992 could not keep the up the tempo which it had maintained in the period between 1990 -1992 and was trading at just 6k in Jan 2000, The burst of technology bubble saw the world markets sinking, and Sensex too could not hold onto the gains which it had accrued in the last 8 years and by 2003 the Sensex lost all the gains it made in the 8 years from 1992 to 2000 and was trading at 3000 i.e 25% loss in 8 years, the new money printing presses opened by Alan Greenspan (the Fed Chairperson) saw starting of a new bubble in United States, and going the theory that is US sneezes Emerging Markets catch cold, Is US Smiles the Emerging Markets should have a laugh, so the Sensex returned to its exuberant speed that it first saw in 1990 -1992 and this time it traded at 21,000 by the close of year 2007, well this rush of foreign investors who were selling the Japanese Yen and investing the money which they literally got at 0% in the high yielding but risky emerging markets, could not make the Indian currency appreciate to a level where it was when the doors of Indian equity markets were opened for Foreign Investors, well the rush of the foreign investors could only do as little favor to the Indian that now 38 Rs were required to purchase 1 Dollar i.e while the Indian Sensex returned 500% gains for the Foreign Investors who purchased in 1992, the Indian currency halved there profit by depreciating 50% in value.

In the next few posts we would see How the Chinese growth story of 10% made its impact on the Yuan, we will also have a look at how the deflation in Japan created a movement in Yen. And then we will try to analyze how the dollar is likely to move if it is going to follow history.

Is the Safe Haven called Government Bonds really so or instead eating into our investments while fooling us into believing its safeguarding our investments?

2009-11-19T22:55:00.000-08:00

Are we robbed of our investment by investing money into the Government bonds, lets take the example of the US Government and see whether investing in Government Bonds is protecting our Capital or not (Most other Governments of the World fall in the same category, but it is the US Government which has been caught first). The US government issues Long Term Treasury bonds for common public, Foreign Investors & Sovereign Institutions, but now due to lack of demand for the huge record amounts of debt issued by the United States government, the US Federal Reserve is planning to buy more than $1 trillion in debt, which is like a taking loan by one hand and printing note by the other hand to giveback the money, means creating money out of thin air, now this money when it reaches the market it causes Inflation as I have explained in my previous post http://niftywhatcanhappen.blogspot.com/2009/11/what-drives-inflation.html

2009-11-19T22:52:00.000-08:00

now lets see the consequence of this inflation on the lender, and how he has been fooled into believing that he is getting some return on the investment, nurturing the view that lending money to the government is the safest investment, as the government takes money from you and returns the original investment with some profits on expiry of the contract, and government is most unlikely to fail in repaying the loan, the lender falls into the trap, but the lender fails to understand the complete implications of investing money in government bonds, when the government is going to print money to repay the loan, suppose the lender is saving money to buy his dream home in a posh area, which he cant buy immediately due to shortage of cash, and doesn’t wants himself to be in debt so he saves the money instead and to get some return on investment, he invests it into the Government bonds thinking it as the most safe investment, but the government is printing money to repay the debt leading flooding the markets with paper money, increasing the cost of the lenders dream home much more than his assured return, so at the time of the expiry of the contract if the lender is getting 150 for very 100 invested the price of the dream home has rocketed and reached 300 for very 100 making it a loss of 150 Rs for the lender, so actually the dog kept to safeguard the house has stolen the beef in the house, so then where to invest money in this highly unpredictable situation where the unemployment is increasing but prices of the commodities too are increasing, the government is reporting deflation but the expenditure from the pocket is showing inflation, well you have to decide in the mind whether you expect growth to pull down the inflation, or the inflation to pull and show some inflated growth, if you feel inflation is going to win then you are better off investing in Indices via Exchange Traded Funds (ETF’s), albeit putting a stoploss somewhere round, for example Dow Jones Index has traded for most part of this decade in the range of 10K to 12K, so breaking up above 10K and maintaining it for considerable time could be considered positive while a break down below 10K should be considered negative and the Dow can then retest the March 2009 lows. An alternative investment could be buying Gold and maintain a stoploss of close to $1040, as gold has traded for a long time close to $1040 and just given a breakout above $1040, so keeping a stoploss at $1040 one can go long in Gold for an initial target of $1400, and if $1400 also broken sustainably then Gold can target $2000.

What drives the Inflation?

2009-11-17T00:44:00.000-08:00

Well the answer is quite simple it’s printing of money which drives the Inflation, many already know this, but let’s illustrate

Suppose there are four People A, B, C, D in a very small town. There are four types of skilled workers in the Economy, suppose A is a Farmer in the Economy who produces agricultural products like Wheat, Rice, fruits etc. B in our hypothetical example is an Transporter who transports goods. C is an Artist who entertains people by enacting small stories, scripts, etc. D is a Mechanic who repairs vehicles, machines etc. Now suppose there is a Government in place which has issued Currencies which the people have to use while buying or selling goods, they cant reject the Government Notes, now suppose that D has found a machine which can print notes, now he becomes lazy and stops working as the printing machine suffices all his needs, he starts buying food from the farmer and pays him though the notes he has printed, when he needs entertainment he gets it from the artist and pays through the printed notes, but whenever the Transporter needs to repair his vehicles ‘D’ does not oblige and refuses to work, now lets see how the situation turns out, Farmer has a limit of producing agricultural goods, and also whenever any machines at his workplace stop functioning there is nobody round to repair them as the Mechanic refuses to work and repair the machines, so whenever any problem arises he has to use the services of Transporter to carry the machines to city for repairing, If he needs to entertain himself, needs relief from stress after rigorous work in the weekdays, he cant get it has the Mechanic with all of the printed cash he has already booked the artist for his service, Also since the Transporter cant get his vehicles repaired from the Mechanic he has to use the services of the Mechanics from the city and render them extra money as travelling allowances, to get all his vehicles repaired, increasing his cost which he passes on to the farmer whenever he needs to transport machines, All this leads to the farmer in believing that the current prevailing prices for his goods are not sufficient for him, as he has to render more money to the transporter, also he is not able to get refreshment after the rigorous work of the week, he hikes the prices of his goods, but to no avail as this is not sufficient due to the printing press of the Mechanic which renders money as and when required to get the services of his choice, but there is saying you cant fool all the people for all the time, slowly and steadily people start sensing something fishy is happening, after coming to know about the printing press they start pricing in such a manner that they might be able to beat the printing machine and all this leads to hyperinflation.

Well I have used a small example of a small town with just four Individuals, but this is what might happen when more people are involved but the price discovery would be albeit at a smaller pace. Printing Money not supported with sufficient goods money can buy lead to Inflation. User comments welcome.

Zimbabwe Not an Exception that 'Inflation drives Stock Markets'

2009-11-15T22:39:00.000-08:00

In the previous post http://niftywhatcanhappen.blogspot.com/2009/11/what-drives-stock-market-up-growth-or.html I had mentioned that I will elaborate further on how Zimbabwe is not an exception to the contrarian theory that its inflations that drives the Markets, so here I am to put in some more facts that will prove the theory.

The Chinese Index, the Shanghai Composite was trading at close to 1500 in 1992, and the same index was languishing at 1000 in 2006, a loss of 50% after 14 yrs inspite of unbeatable GDP Growth rate of close to 10% in the same time frame, so friends has the GDP Growth pulled the Market, the answer is no. The Brazilian Index, Bovespa zoomed more than 200 times in the period between Jan 1993 to December 1994, But the Brazilian Economy was not growing at ultra super pace, infact the growth rate dropped a little from 1994 to 1995, but still the Markets gave this handsome return (one of the reason for this zooming was inflation, the other I will post later). The Mexico Economy could not surpass the GDP Growth rate that it saw in 2000 uptil now but the Mexico Stock Index IPC is trading 4 times its 2000 High, so what is driving the Mexico Index, is it the Inflation.

I will be researching further on this topic (and hope that my readers give their opinion maybe seconding me or contradicting me), also we will take a look at how the Government is creating inflation and how it might become necessary to invest in the Stock Markets if the DOW JONES index trades above 10.3K, Also I would be posting my opinion on how the US Dollar is not going to sink, while the other Currencies might sink.

GOLD might touch 1400$ as long as it stays above 1040$

What drives the Stock Market up GROWTH or INFLATION?

2009-11-14T05:47:00.000-08:00

Most of the Fundamental Analysts say that growth drives the prices of the Stocks up, is it right? Most of those Analysts said that a drop in the prices of Crude would help the market rally but when Crude prices were tanking most of the World Markets too were tanking, when the Crude fell to 33$ the Dow Jones Industrial Average was not at its life time high, neither the Asian Market Indices like Sensex (India), HangSeng, Shanghai Composite (China) were trading close to lifetime highs but were languishing close to more than 50% down from there lifetime highs and now that the prices of World Markets have improved, the Crude too has more than doubled in price.

A small query for all my readers, do you know the Stock Markets in the World that gave most returns?

Was it Bovespa which traded at 19K in 2000, 8K in 2003 and traded at 74K in 2008 a whopping return of 900% over 5 years, or was it the Sensex which traded at 6K in 2000, 2.3K in 2003 and went on to trade at 21K in 2008 again a handsome return of 800% in 5 years, And I have not forgot the Shanghai composite which was trading at 1.2K in 2006 and went on to trade above 6K in 2008 a return of 500% in just 2 years. But dear readers it seems you have forgot Zimbabwe where the unemployment rate is close to 80%, yes dear readers you have forgot Zimbabwe

According to

http://www.zimbabwemetro.com/finance/stock-exchange/zimbabwe-stock-exchange-market-capitalisation-reaches-us203-billion/

Zimbabwean Stock Market gained 300000%,

http://www.thezimbabwetimes.com/?p=12045

Says that Most shares gained 50,000% in one day

http://www.dailyreckoning.com.au/zimbabwe-stock-market-booms/2007/06/04/

Attributes a smaller return of 12,000% over a year to the Zimbabwean Stock Markets

So friends how come a Country whose employment rate is just 20% gives such handsome returns on investments in Stock Markets, It just due to the fact that the inflation there is running hot as you all know and that the biggest note there is 1 Billion (approx) and it can purchase a loaf of bread for you.

In my next post I will elaborate how Zimbabwe is not an exception but an example of the Contrarian Theory that the Inflation drives the Stock Markets and in a post after that why the US $ would not be sinking but gaining, Till then Take Care and try to beat the INFLATION.

Nifty November Trade

2009-11-12T23:44:00.000-08:00

Nifty closed @ 4750 at the F&O Settlement of the previous month, from that point forwards it has traded below 4750 for 4 days and closed 3 days below it, on the other hand for 5days (excluding today) it has closed above 4750, Nifty has traded in the November F&O from a low of 4538 to an high of 5012, which makes up close to 10% and normally Nifty doesn’t move more than 10-13% in a month, excluding times of high volatility when the difference between the highs and lows for the months accounts to about 30-40% of the value of the Nifty, So one can except a strong resistance close to 5020 for the Nifty in the November settlement, on the other hand the Nifty is currently trading above the 20 days simple moving average which should be considered as bullish, also all the short term averages are place above each other which too is bullish, Also there are only about to 37 days trading left in this year and normally nifty tends to close the year near about high if it has traded for most part near the high, so what to trade, it would be better to buy puts intraday near the 5012 and exit on an intraday dip of 50-70 points, or the trade could be to sell Nifty 5000 CE close to 80 and hedge it with Nifty 5200 CE close to 20 with max gains of 60 and max loss of 140 or the position could be squared of if the Nifty trades above 5052.

Where is the DOW headed now?

2009-11-12T05:41:00.000-08:00

The Dow Jones Industrial Average after hitting a bottom just below 6.5k in March 2009 is now trading up above 10K, a whopping gain of 50% for all those who bought in at 6.5K, so what could be the next move, would it up or would it breakdown yet again, is this the correction to the major downtrend that saw the Dow Jones loose more than 55% of its value in a matter of 1 ½ year between October 2007 to March 2009 or is it just a building phase of the new bull market, Lets delve into the history and look, the DOW started its most bullish phase in 1995 at 4K’s and ended it at 12K in 2000, although the DOW managed to break past 12K in 2006 we cant call this a new bull market because it just satyed above 12k for a year and then even broke the 2002 bottom, so all in all the 2000 – 2008 could be called timewise correction for the bull market from 1980 – 2000, The Dow after cutting about 7.5k points from 14k to 6.5k has added about 3.8K points to trade at 10.3K that is it cut 50% of the fall which could be still called a correction, at the same time it reached the lower trough of the trading range of 10 -12K where it traded in 2000 – 2002, and 10 – 11 K trading range of 2004 – 2006, now this lower tough of about 10K which acted as a support that time could be the resistance this time round, so the level of 10K should be watched, also the markets don’t go down or go up in straight fashion they always tend to test the bottoms as well as the tops and for that matter the bottom at 6.5k has not been tested so could it be that the markets will break again and move down, lets keep our finger crossed and see what happens.

Maintain the shorts but be cautious

2009-07-16T00:10:00.000-07:00

As I had mentioned in my previous post, HDFC did not move to the expected target of 2300 Intraday, it took support at 2342 and reversed; it triggered our intraday stoploss and went upto the target of 2430 where we had positioned ourselves to go short, now as I am writing HDFC has opened up at 2476 but it could not hold at that point and hence our first stoploss of 2460 should not be placed if by any chance it still excels 2460 50% of the position should be exited while the remaining to be exited if it crosses 2500 and if it doesn’t hit these stoplosses we can held the short positions in short term.

Hero Honda too excelled our first stoploss of 1520 but didn’t sustained over there so no need to cover the short, but any movement above this exiting half the positions is necessary which could be again built close to 1585, Bharti Airtel too opened up at 800 and hit our first stoploss, but no need to panic as it too as not sustained at that point, but we need to be extremely cautious.

Strictly maintain the stoplosses as by taking bearish positions we are fighting the strong enemy by the name US Federal Reserve and all the policy deciding Major Central Banks of the world who might even drop money from Helicopters (this are the comments by Ben Bernanke, Chairman of US Federal Reserve) to inflate the economy and cause disasters for many people living below poverty line in India as well as the World and anyways we are here to make money and to make money we have to keep our hearts out and trade with our brain so strict stoplosses and keep in mind we are in a recession but it could be deflated inflation or hyperinflated recession wherein 1 Crore note would be required to buy bread, so be cautious and don’t be over confident.

Targets for short selling

2009-07-14T23:19:00.000-07:00

After a strong downfall from 2618 to 2144 HDFC has given a correction (this is a correction till it doesn’t trade beyond 2450 – 2460) and traded up to 2430, now HDFC might resume the downfall, so as of today one can go short for a target of 2300, HDFC is currently trading close to 2380 one can keep a stoploss close to 2398 next 2406 and lastly at 2415 and go short on HDFC for a target of 2300 intraday. Also if by any chance HDFC trades above our stoploss wait for HDFC to move past 2430 and then short HDFC Future with a stoploss of 2460 (cash) and 2500 for a minimum target of 1800 in coming 2-3 months.

Hero Honda to seems to be topped out and could be a target for short building the first minimum target on it seems to be close to 1200 which could be achieved within 1-3 months, the next target on it seems to be close to 900 which could be achieved within 5-6 months possibly by year end stoploss for all this positions is a trade by Hero Honda above firstly 1520 and next 1626

Bharti Airtel to seems to be in a phase of distribution and could be a target of shorts with a stoploss close to 800 and 850 for a target of 500 in next 4 months

2009-06-21T01:47:00.000-07:00

Why Inspite of Financial Markets Crashing Gold has Stayed Up

When most of the financial markets in the World and even the Commodities especially Crude Oil had fell from 140$ to below 35$ why is it that the Gold is holding on, What could be the reason, do the investors believe that Helicopter Ben (i.e. Federal Reserve Chief Ben Bernanke) will inflate the World by dropping cash and so it would be better to buy Gold and stay safe when Banks world over are going bankrupt, but instead of buying Paper Gold I feel investors should be buying Gold Coins, and have Physical Gold with them via Gold Coins, http://www.goldcoinsgain.com is one of the places from where you can purchase gold coins. http://www.goldcoinsgain.com also offers free Gold Guide, You can also contact http://www.goldcoinsgain.com through 1-800-940-7793, Analysis on how to trade Gold could be found on there website at http://www.goldcoinsgain.com/gold-market-analysts.html

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How could the Sensex / Nifty trade

2009-06-13T23:18:00.000-07:00

Bullish, Bearish or Consolidation, What lies in the future?

Sensex which closed just above 8K on March 9, has closed above 15.4k on June 10 that is a whopping close to 100% gains, so should we consider that the brief Bear Market is over and we have started a New Bull Market yet again, well if history is the precedent than not, because the biggest small time gains that come by investing in equities or equity indices are in a bear market, well so how could the Sensex trade in Near and Long term Future, there are three options
1) Start of a New bull Market
2) Consolidation which would ultimately breakout on the downside
3) Immediate Breakdown of the Indices
I don’t think that the Market would be consolidating and then breaking on the upside

Lets Elaborate on all the Three

If Sensex breaks past 16.1K (which would mean Nifty breaking past 4830), I would be of the opinion that the bear market is all over and we are set for a new bull market, I would advice to long the Market but via Long Term Nifty Options, I would say purchase Nifty 4500 CE Dec 2011 Expiry Contract which could be bought @ 1100 or 1150, if Sensex once again breaks below 15.6K then the position should be hedged if you could not liquidate it at a fair price as Dec 2011 expiry contracts are not liquid.
Now coming to the second option if Nifty is consolidating and reaches close to 4800 I would say buy Nifty Near Month Puts with a strike close to 4800 and exit if Nifty breaks past 4830
The third Scenario would be that if Nifty breaks down below 4350 I would be readying myself for a long term Bear Market and would advice to buy Nifty 4000 PE Dec 2011 Expiry which could be available close to 500/- the stoploss in this case could be placed if Nifty trades above 4430
I would be updating the Long term Targets in the Near Future as of Now I feel that Nifty might close at 4500 or at 3000 on 31 st Dec 2009

Election Results Out, What Further On

2009-05-18T08:17:00.000-07:00

Finally election results are out and UPA Govt has won the Election and the hopes of a Stable Govt and also without the Communist support have driven the Sensex to above 14.2K with the first ever circuit breaker in its history, but shall it be able to remain aloof of the Global Markets and start a rally of its own, well I don’t feel so and have an opinion that 2004 is going to be replicated wherein we saw Sensex breaking down with a Circuit Breaker and creating its low not to be seen until now as we followed global trend and forgot everything else, so that might be the case just now too, we might just have a top in place after all the initial Euphoria regarding Stable Govt calms which might be as early as tomorrow, 14.3 – 14.4K, might be the first place to enter shorts with a stop of hardly 50 – 70 points, if triggered 14.6 – 14.7 K might be the next level to go short with a stop of again 50 – 70 points. If 14.8 K to breaks then well it might be a start of a new bull market, well but I believe that no new bull market is on cards and we might close the year at 10K or maybe even 6K cud be seen this year only with 11K coming by June itself. So I wud suggest to buy Nifty Puts of Dec 2009 Expiry and strike Price of 3600 or 4300 as long term trading strategy. Coming to short term strategy Nifty might test 3900 by this expiry so 4100 put option close to 60 might be a short term buy. Happy Trading

Inflating the Inflation, Deflating the Deflation

2009-02-23T10:06:00.000-08:00

The Dow Jones Index which was close to 1000 in 1982, topped in 2007 at above 14000 i.e. it inflated 14 times in 28 years and in the current Depression (not yet official), has corrected about 50% and is currently trading close to 50% down from life time highs, Now the Brazilian Index Bovespa which was trading close to 5000 in 1994 topped out at 74000 in 2008 i.e. it inflated much faster than Dow Jones, but now it is currently trading near to 40000 after hitting 29000 in October i.e. it has not deflated as fast as Dow Jones, and still recently one Citigroup Analyst maintained a target of above 50,000 for Bovespa for year end and said that he would be buyer at 35000, All in all the analysts are fooling the world to believe that the inflated, ponzi scheme index called Bovespa is a buy, just like the S&P fooled the world by upgrading Bovespa as investment grade when it was trading at close to 72000, so that speculators could distribute there holdings.

Now let’s have a look at the Composition of Dow Jones and the Inflation, Deflation therein

Walmart which a penny stock and trading at 0.06 in 1972, had a lifetime high of close to 70 and almost giving returns like a ponzi scheme, was inflated more than 1000 times in just 36 years, the stock is currently trading close to 50 and is outperforming the Dow Jones Index.

Microsoft trading at 0.1 in 1986 hit a lifetime high of 60, It was a multibagger stock inflating more than 500 times in just 14 years

Similarly Mcdonald inflated from 0.3 in 1970’s to all time high of 60, inflating 200 times in just 36 years, HP inflated more than 500 times from 0.14 to above 77, Intel inflated more than 200 times from 0.35 to above 75 in just 14 years.

On the other hand Bank of America which inflated not more than 10 times from about 6.5 to 55 in 10 years is trading close to 4 after hitting 2.6 recently. Similar story could be said about Citigroup, JP Morgan, GM, GE, all this stocks are the ones who have beaten down hardly inspite of not inflating.

Now coming to my Indian Sensex, Leaving out the ponzi scheme Satyam which had inflated more than 500 times from 1994 to 2000, obviously on inflated earnings, and whose fraud came into light, The other Inflated Stocks Infosys, Reliance, Bharti Airtel, BHEL are still outperforming the Sensex.

2009-02-16T21:17:00.000-08:00

Sorry Readers, it seems my expectations as posted in http://niftywhatcanhappen.blogspot.com/2009/02/can-sensex-trade-above-123k-by-mid.html are wrong, 2850 on the Nifty needed to be held for Nifty to move upto 3600 by Mid March, but since 2850 is broken and since Nifty has even broken 2820, Nifty seems to be heading towards 1800 by April end, well there are two options for the Nifty right now either it recovers and trades above 2850 which then could take it upto 3600 by mid March or it trades constantly below 2850 targeting 1800 by April end, the best trade is Buying Nifty March PE 2500 Options till its below 2850 some 3100 Nifty CE for March could be used as a hedge, ratio cud be for every 2 Nifty PE 2500 1 3100 CE cud be bought, While if it breaks above 2850 one 2500 PE could be sold at loss and one 3100 CE could be added, Also if 3600 is to be achieved its has to be done within next 20 – 25 days, including today, if not no chance, while if 1800 is to be achieved 2300 on the Nifty should come by March end, Strong positive or negative movement is likely, substantially low chances of range bound trade.

2009-02-09T23:51:00.001-08:00

Now that since I am concluding by my Technical Analysis that Sensex should hit 12.3k and trade above that by Mid March which concludes Nifty Should be trading above 3600 by Mid March, so lets check if the Nifty Components have enough strength to Pull the Nifty above 3600

Reliance currently trading close to 1400, weightage in Nifty 12%, 1650 – 1690 looks at the max possible on the counter, which transpires into close to 20% gains from current position, so Reliance can add at the max 2.4% gains to the Nifty

ONGC currently trading at close to 710, weightage in Nifty 8.35%, anything above 780 – 800 looks far fetched on the counter, so ONGC can add about 1% to the Nifty

Bharti which is trading close to 660 at this moment has a weightage of close to 7% on the Nifty, 750 – 780 looks the best possible for the counter, which transpires in Bharti adding 1.2% to the Nifty

NTPC which is trading close to 183 right now, has a weightage of close to 8.5% on the Nifty, 190 which the counter touched 4-5 days earlier is a strong resistance, breaking which 220 looks possible, but 220 takes it into a bull market, while the whole Emerging Markets Space looks as it is in Great Depression, also NTPC has not closed at or nearby 112 after touching it in October 2008, anyhow for our purpose let say at 210 - 220 it will add 1.5% to the Nifty

BHEL currently trading close to 1415, commands a weightage of close to 3.75%, anything above 1600 looks overstretched on the counter, hence BHEL can add 0.5% to the Nifty

Infosys trading close to 1310, the counter can bounce max up to 1550, With a weightage of above 4%, the counter can add 0.6% to the Nifty

SBI trading close to 1180, an ask price of 1400 on the counter is possible, while very few chances of the counter touching 1600 look possible, with a weightage of above 4%, At 1400 the counter would add 0.6% to the Nifty

Uptil Now close to 50% of weightage is consumed and close to 8% could be added to the Nifty, Lets see how the counters commanding 2-3% Weightage look

HDFC with a weightage of 2.38% and currently trading close to 1540, looks overstretched above 1900, so it can add 0.5% to the Nifty

HDFC Bank with a weightage of 2.22% is trading currently at close to 950, 1100 or at the best 1200 is possible on the counter, which transpires in gains of 0.5%

TCS currently ruling at close to 515 command a weightage of close to 2.75%, can head up to 650 or 670, adding into 0.6% to the Nifty

Wipro trading close to 225 and commanding weightage 1.8% can head upto 300, transpiring into gains of 0.6% to the Nifty

Sail currently trading at 88 with a weightage 2% can have an ask price of at the best 115, which adds in 0.7% to the Nifty

RPL trading close to 88 with a weightage of 2.17% looks poised for 105 at the best, adding up 0.4% gains to the Nifty

Hence HDFC, HDFC Bank, Wipro, TCS, Sail, RPL which combined have 15% weightage can add upto 2.5% to the Nifty

HLL and ITC have combine wieghtage of close to 7.5% and have all time highs about 20 – 25% above from there Current Market Price, lets hope they trade 10-15% higher from here, transpiring into about 1% gains for the Nifty

So this 14 Scrips with 72 – 75% weightage in between them can add upto 12% gains for the Nifty, now that Nifty is trading close to 2950 and target is above 3600 transpires into 22-23% gains for the Nifty from current level, implying that the remaining 36 counters with combines weightage of 25% between them have to post close to 10% Gains for the Nifty, Again RCOM and DLF are making new lows each and every time Nifty Corrects and have weightage of about 3.5% between them, So all in all ICICI Bank, Relinfra, Tata Motors, Tata Steel, Suzlon, Hindalco, Idea, Sterlite which have beared the most brunt of the collapse would have to post big gains for the Nifty to trade above 3600.

Can Sensex Trade above 12.3k by Mid March

2009-02-09T03:10:00.000-08:00

The Technical Analysis says that Sensex should be trading above 12.3k by Mid March (Well I am sorry I would not be detailing how the charts suggest Sensex to be trading at 12.3k by Mid March), but the Fundamental Picture would be cleared once the US Senate passes the Stimulus Bill and US Treasury Secretary comes out with a Bank Rescue Plan (Bad Bank Plan), Well the Senate would be voting on the Plan on Tuesday 10th February while Treasury Secretary might reveal the Plan the same day, If the Senate clears the Stimulus Bill and Treasury Secretary is able to outline the Bank Rescue Plan then if the Markets are going to follow Technicals then Dow might rally above 10k in a short frame of time, which will have an effect on Emerging Markets which will pull the Sensex above 12.3K by Mid March.

But looking at how the Dow Components are Trading one can see that GM, GE, Bank of America, Citibank, JP Morgan have erased there Market Capitalization Substantially, and hence have very little weightage in the Dow, and these are the scrips which should be posting the biggest gains, maybe doubling or tripling from the current levels, to take the Dow past 10k, because Exxon Mobil, Chevron, McDonald which are the Heavy weights in the Dow are trading quite close to Resistances and cant add to much gains to the Dow.

Now Coming to the Sensex One can see that Bharti Airtel, NTPC, ONGC, Reliance, Bhel, Infosys which combined together have a weightage of close to 50% in the Sensex have resistances such that 15-18% gains for them at the max look possible, while RCOM, DLF are at new lows each time Sensex falls and may not contribute big gains for the Sensex, that lives us with Icici Bank, Relinfra, Hindalco, Tata Motors, Tata Steel, Sterlite which have erased 70-90% of there maximum values and are having combined weightage of close to 7% to add in big gains to the Sensex so that it can trade past 12.3k.

Now the Counter View

Should the Stimulus Plan be rejected by the Senate, or the Bad Bank Plan does not augur to well with the Bulls and Dow breaks past its November 2008 Lows, then the Sensex might be staring at 6k

So How to trade the Market for Maximum Gains and if ever Losses then Minimum

Well One Can buy Nifty 3100 CE for February Current Price 29 Rs in 8-10 Lots

Real Reason for Crude Spike

2008-06-27T04:28:00.000-07:00

The real reason for the spike in crude is 'FED Printing press which is printing dollars' since there are more number of dollars printed hence a drop in value of a dollar which makes the asset denominated in dollars cheaper. And in turn to maintain the real value of the asset (in demand) denominated in dollars the asset price moves up. Since Crude was considerably less priced , yah because while the stock markets in Emerging market space and also most other commodities have multiplied by 6-7 times there 2002 - 2003 lows when they reached there 2008 highs, the crude which was more than 35 dollars in 1981 itself, while as low as 23 dollars in 2002 was lagging behind, and also since most analyst uptil somedays back were saying that China will grow above 10 - 11% followed by India which too would be growing 8 - 9%, hence it was assumed the demand for Crude in India and China, which meant that crude was an asset in demand and hence chased from 120 - 140 in a matter of few days. Now Since the FED has stopped the printing press somewhat (because the rate cuts have stopped, but accepting junks from investment banks as collateral for lending treasuries is a still a way of printing money) the crude is in a phase of distrubution, If the FED continues to hold rates at 2% for more 2-3 months, while the Central Banks in Emerging markets say India, China keep on rising rates and also decrease the subsidy on Crude Oil then the Crude might start a Correction.

How would the Dow Jones Close today?

2008-04-15T06:24:00.000-07:00

Two Major Economic data were released in the US today

1) Producer Price Index (PPI)

The PPI increased by 1.1% while the expectation was for an increase of mere 0.4%, while the core PPI which excludes volatile food and energy was up 0.2% and was as expected, but since the FED had said at its last meeting that ‘risk of downturn of economy is bigger while inflation although not showing signs of cooling down is likely to moderate over a period of time’ hence this is likely to be ignored by the Market participants over there.

2) Empire State Index

The Empire State Index put in a reading of + 0.6 from -22.2 in March, readings over 0 indicate growth while that below 0 indicate contraction. The Expectation was for -17 so it is a hefty increase beyond expectation. This data is likely to move the markets over there as the participants over there would like to believe that the worst of subprime is behind them and mild recession is likely to be the outcome.

While on the earning front Johnson & Johnson which is also a component of Dow Jones Index has reported a better than forecast earning, also it has raised it forecast for 2008 earnings.

As of writing this the Futures of Dow Jones were trading positive 60 points, looking at what happened until now closing looks likely to be in a positive territory.

Will Markets Break the Range?

2008-04-14T21:11:00.000-07:00

As I had said in my earlier post http://niftywhatcanhappen.blogspot.com/2008/04/players-want-indices-to-stay-range.html The Nifty could not break 4800 and gave the opportunity to sell 4800 calls while hedging was done with 5000 call. But now one thing has changed in the global scenario, General Electric (the most conservative company while giving earnings guidance) results declared on Friday were a big disappointment, they could not even achieve what they had predicted and what had seen said was always in the pocket. Now most of the Asian markets reacted by breaking down by 2-4% on Monday, since our very own market was closed on Monday we were left out. So as I had said in my post that every fall towards 4620 is supported by the optimism that most markets are trading at there monthly highs, now that optimism might be broken down because some have posted biggest falls in a month. Since most Emerging markets Indices have broken down now the best case scenario would be too think 4800 or lower to be April F&O (24th April 2008) closing on the spot Nifty and act accordingly so 5000 put could be bought will 4800 put could be sold.

Are World Stock Markets Manipulated

2008-04-12T06:11:00.000-07:00

I am pointing out some facts then you decide the answer yourself

The Bull run in most of the Equity Markets started in the 2nd quarter of 2003, now each of the markets have gone major upswings or downswings almost altogether lets see how

1) First my very own BSE Sensex
Sensex traded at 2924 on 25th April 2003, now it formed first major top at 6194 on 14th January 2004, and this top was almost equivalent to its 2000 top, now after correction the bottom was at 4505 on 17th May 2004, the breaking above the previous top was achieved on 30th November 2004. The sensex consolidated in a range of 6000 – 7000 from December 2004 to June 2005. Now the sensex went up to 8800 in Oct 2005 wherein it corrected up to 8000 in Oct 2005 itself. A big upward movement took the sensex towards 12676 in May 2006 almost 50% gains within 7 months. A steep correction saw the sensex drop to 8800 in June 2006. The sensex broke above the previous top in Oct 2006. Yet again the sensex consolidated in the range of 12500 – 14500 in the period between December 2006 to June 2006 with a steep fall in Feb 2007 (on subprime issues, which just started showing up) but immediately resuming uptrend. The sensex was just a catching distance away from 16K when subprime issues saw the world markets and hence the sensex drop up to 14K in July 2006, wherein Fed rate cuts saw most emerging markets move upwards with Sensex and hangseng being outperformers, sensex moved past 21K, but then US recession rather then a slowdown seemed more probable after first drop in hiring was reported in US jobs report and most emerging markets dropped heavily with hangseng and sensex yet again showing there out performance but this time on the bearish side.

2) Now let’s have a look at Brazil Index Bovespa
Bovespa formed its first major top in Jan 2004 at 24K which was near about 25% more than its 2000 high, now after correction the bottom was 18.5K in May 2004.The breaking above the previous top was achieved in November 2004, and then it consolidated in the range of 24K to 28K in period between Nov 2004 to Sep 2005. In May 2006 bovepsa too underwent a major correction which saw it dropping from 42K to around 32K in Jun 2006. It too broke above the previous top in November 2006, and also saw a steep fall in February 2007 and June 2007 which was related to subprime issue. Bovespa too gave handsome returns when Fed started to cut rates.

Now if we compare this two Indices we see that both of them formed their first major top in January 2004, after which both of them saw some sideways movement till November 2004, both of them show triangular pattern in there charts for a period between November 2004 to June 2005 both of them gave significant correction in May 2006. Bovespa outperformed sensex in the period between March 2007 to June 2007 and sensex was the leader in the period between August 2007 to January 2008. While Bovespa might have given more returns than sensex, it is the Indian currency which appreciated more against the Dollar then the Brazilian real.

Likewise if you see charts of most other markets including Dow Jones, Ftse, Hangseng, Strait Times, All Ordinances etc you will notice that while Bovepsa, Sensex, Mexico IPC, Jakarta Composite etc were rallying the Markets which were lagging behind were consolidating, it has hardly ever happened that this markets were rallying and the other ones were falling, they were just plain consolidating. Most Important aspect noticed is that hardly a single month could be found in last 5 years wherein while one market has given above 10% returns the other one depreciated by 10%. So there is hardly any month when a call option on certain Index has given good return the opposite Put option has given good returns on any other Index.

Players want Indices to stay range bound before results

2008-04-08T21:21:00.000-07:00

The way we are trading for last 8 – 10 days it seems the Market players are getting skeptical as and when nifty reaches 4800 and above and every gap up opening is used as profit booking as fear of inflation, what the earning would be given the global slowdown, drop in IIP numbers, there seems to be fear that would the earning slow down significantly that the valuations would look overstretched. But on the other hand as and when the Nifty reaches 4620 the optimism takes over the reason could be the global markets are not breaking and most are even trading near about there monthly highs.

The best case scenario now would be to sell options rather than buy them, so as and when the nifty is close to 4600 level 4600 put could be sold but to protect yourself from any adverse move 4400 put could be bought, if this is not suitable then 4500 call could be bought along with 4400 put. Also as and when if nifty closes in nearby 4800 and above 4800 call could be sold while 5000 call could be bought in.

Now coming in to trade today, most of Asia is trading in red with 1 – 1.5% cut, exception being Hangseng which is for most of the day in green. The trade is quite difficult for today personally I am avoiding Intraday trade as of today.

Not much to write about

2008-04-06T21:20:00.001-07:00

The Market might trade in a tight range with lots of volatility, better not to trade as of today.

Dow Jones Not Underperforming Emerging Markets

2008-04-06T04:53:00.000-07:00

Let’s First Have a Look at Indian Sensex

Sensex touched the Figure of 1000 in July 1990

In July 1990 17.4 Indian Rupees Could Buy 1 Dollar

Now Suppose an US investor wants to buy 1 Sensex in 1990 he could buy 1 Sensex for 57.47 Dollars

Now Suppose He sells that 1 Sensex in 2008 at the Sensex top of 21206 and 39.2 Indian Rupees able to buy 1 dollar, he would get 541 Dollars

Now Lets have a look at Dow Jones

When Sensex touched a figure of 1000, Dow Jones was trading at around 3000

Now Suppose Indian Investor wants to buy 1 Dow Jones then he would require 52200 Rupees for the same.

Now if the Dow Jones is sold in 2008 at an all time high until now of 14297 when 39.2 Rupees can buy 1 Dollar, his returns are 560442

So in the Long term both the Indexes have given similar returns with the only difference being that since Indian Rupee depreciated against the Dollar hence the Indian Sensex moved more then the Dow Jones.

Also while the Dow Jones moved to 12000 in Jan 2000 from 4000 in Nov 1994 the Indian Sensex barley moved in the same period, while when the Sensex moved from 6000 in Jan 2000 to 21000 in Jan 2008 the Dow Jones was nearly stable in the same period.

Similarly if you have a look at the Emerging Markets like China, Brazil, Mexico, Korea, Indonesia, whose Indices have doubled or even quadrupled from their 2000 highs, you will see that there currencies have depreciated hugely against the dollar in the nineties and also they did not give a big upmove in the period between 1994 to 2000.

Monday Could be big day

2008-04-04T02:27:00.000-07:00

Right Now at 2.58 pm as I am writing just 32 minutes from Market closing 4640, The Nifty might closein at 4620 and 4620 was the big support the bulls were taking uptil now. Today Friday is a important day for US market trading as US Jobs figures are going to be released today in the evening by 6pm India time. Now if the Jobs figures show bad news the US markets might drop sharply. Asian Markets (should I say just hangseng) which have not gone though bad patches inspite of US markets having bad days of lately can react by opening Gap down on monday which can cause a bad opening for us on Monday. Lots of 4500 puts have been written and the premium too is sufficeintly down compared to March series, hence 4600 put could be bought at near about 140, but since tommorow i.e Monday could be make or break day hence 4800 call or 5000 could be added as an hedge.

Would the Market sustain Rally?

2008-04-01T21:09:00.000-07:00

Apologies for not writing for last two days, due to personal problems could not write for last two days. A Gap up opening of 4910 on the Nifty is probably on cards, a mild correction towards 4880 would be the place to go long, and worst case scenario can be 4860 on the Nifty. If the Nifty drops below 4750 it might not go past 4910 as of today. Way the Asian Markets are panning today might not be the day to use every bounce to sell. For Options I think 5000 Nifty Call could be bought in a range of 120 – 140 target could be 160 – 180 if Nifty moves past 4920.

Less Volatility with Upward Direction

2008-03-27T21:20:00.000-07:00

In spite of Dow Jones closing in the negative territory with near about 1% down none of the Asian Markets have intraday lows of even 1% that speaks strength. Nifty should open gap up at 4880 and then try to move towards 4920, I think it might even break 4920 and try to show the figure of 4980. Nifty 5000 Call could be bought in the range of 125 - 135 for a target of 180 and if 180 is substantially broken then 220 stop loss could be placed at 110.
Now coming to Nifty options strategies for April, as I had said in my earlier post that Nifty would be heading towards 5200 or 4200 with the probability of 5200 significantly more than 4200, Nifty is moving towards 5200. As of yesterday when Nifty was at near about 4800 with both be the targets being substantially far, buying Nifty Put and Call Options with same value and waiting for breakout towards one direction would have been the strategy but now with Nifty close to the top target if gap up opening happens, Nifty Call and Put options should be bought in such a way that If Nifty 5000 Call is bought then hedge should be Nifty 4500 Put.

Volatility Yet Again

2008-03-26T21:18:00.000-07:00

The Nifty Index might just open gap down towards 4800 and then might try to get into positive territory, once it has spend some time in positive territory, volatility might show it effects and drag it in the negative. As for closing I am still maintaining that 4740 or 4780 might be the closing, but since short term view is that Nifty should head towards 5200 a closing of 4740 might be just ignored leaving us with 4780, Now Considering 4780 to be closing Nifty 4900 Put Option could be bought at around 90, if the Market behaves exactly as said before then at around 75.
Now For the Next Month series I think 5200 or 4200 might be achieved in this month (high probability of 5200) so Nifty Out of Money Calls along with equally priced Nifty Put Option could be bought and then both could be sold once any target is hit.

Made it wrong

2008-03-26T00:47:00.000-07:00

Ok I got it wrong and I accept that, but now as said in the earlier post that Nifty could target 4980 by thursday closing if the Nifty doesnt loose big view is being changed to Nifty Targeting the close of 4750 - 4780 (becuase nifty is loosing big). It was difficult to digest the change but you have to move around the market and not the other way round.

Has Intraday bottom formed

2008-03-25T22:52:00.000-07:00

Well Today’s Bottom maybe behind us, But are we going to build a rally or the market would in a trading range is the question now. It would be better to buy dips and sell rallies of 20 -30 points. If 4720 is broken in a hurry (within an hour from here) then it might rally towards 4980.

No One Side Affair Expect Volatility

2008-03-25T21:12:00.000-07:00

Today is not going not be as bullish as yesterday but it may not be bearish either, A Gap up opening could drive the Nifty up towards 4920 but it would not be one sided bullish as yesterday, volatility would be the theme today. So any big rises of 30 -40 points could be used to sell while the drops could be used to buy. Trade hourly, if any hour as given big rallies sell expecting dips but don’t trade for big shots a small 0.5% profit on any side could be used to exit.
Now Coming to F&O, I expect Nifty to close at 4980 this F&O closing unless it drops big today so Options could be bought with that target in Mind. Nifty 4800 Call could target 160 if bought near about 120 – 130.
Would try to update at 10.30 and 11.30

Going Long is good for today

2008-03-24T21:11:00.000-07:00

Should the Gap Up opening sustain and even add in more gains as the day progresses as of today the answer could be yes.
Yes the Nifty might just open at 4720 and head towards 4820. Intraday Corrections to the major intraday trend that most likely would be bullish would occur but that should be taken as an opportunity to go long.
Nifty 4600 Call yet again could be bought in the range of 128 – 136 (near about) and target could be 180 and if still bullish 220.

What Lies Ahead Today

2008-03-23T21:18:00.000-07:00

Is decoupling going to move the other way round
Bulls must be remembering the good old days when on any given day the
US Markets would close down by a big negative, next day Emerging Markets too would open gap down but fill in the gap by the time market closes and even post some gains minting in gains for the bulls who bought in at any point of the day, now the table seems to be turned in favour of the bears, US markets post handsome gains, Next day Emerging Markets (in Asia) Open Gap up but by the time market closes all the gains are given up and the bears who shorted the Market at any point of the day gain handsomely.
Now that the US Dow Jones has closed on Thursday with 262 points gains can the Indian Markets open Gap up and maintain the gains, as of now it quite difficult to try to predict the Markets as of today so taking a break.
Some Rough thoughts
Nifty 4600 Put might yet again trade in a range of 60 -80, only if it sustains above 90 for 10 – 15 minutes it is likely to move up and target 120.
Nifty 4600 Call too might trade in a range of 60 -80 and any sustainability above 90 can take it towards 120.
Lastly its better to avoid trade as of today.

Dow Jones Industrials 1929 Pattern

2008-03-22T07:15:00.000-07:00

There are some patterns which almost all Major World Indices have followed in Bull Market has well as Bear Market, since my opinion is we are in a bear market lets elaborate on the patterns in Bear Market.

Pattern of US Dow Jones Industrial Average in the Biggest Bear Market ever, the era of Great Dep 1929 -
The Dow Jones topped out at 386 in Sep 1929, it is said that this was an era when everybody believed that markets are made to rise forever, be in the green always, never drop and go in the red. The bottom was at 41 in Jul 1932 breakdown of more than 80% in 3 yrs.
Now let’s look at the big downfalls, rallies and consolidation phases that happened in this bear market
The Dow Jones fell from 386 in Sep 1929 to 320 in Oct 1929 app 16.6% from the top which everyone might have thought is a correction to the major trend of the bull market, as the Dow Jones gave a pull back rally that took it at 359 (app 13.3%) within 14 days. The mother of all bear runs took over here wherein the Dow Jones dropped from 359 in Mid October to a low of 195 in Mid November a drop of app 45% within a month’s time frame. Again a pull back rally of somewhat less magnitude took the Index at 267 in Dec app 33.3% within a month. Consolidation Phase kicked in wherein the Index rallied upwards to 296 in April 1930 app 3% gain per month, downtrend followed immediately and the Dow Jones fell to 208 by June 1930 a drop of 88 points making app 30% drop in 2 months, consolidation phase emerged over yet again with the Dow Jones rallying to 248 in September app 7% gains per month. Downtrend took over and Dow Jones dropped to 154 in Dec 1930 a drop of app 40% in 3 months time frame. Pull back rally took the reins which saw the Index rally towards 197 in Feb 1931 averaging a return of 12% over 2 months. As usual Downtrend took over the proceedings and the index dropped to 120 in June again app 40% down from the previous top followed by a Pull Back Rally driving the Index towards 158 in June giving a return of 33% in 1 month time only. Consolidation Phase took over and with small ups and downs the Index remained at 140 in August after which a fresh downtrend bought it to 86 at the start of Oct and the downtrend too gave a negative return of 33% in 1 month time frame only. As Usual a pull back rally carried the Index to 120 in Nov again gains of 33% in one months timeframe only followed by a similar magnitude drop which bought the index to 70 in Jan 1931, Consolidation Phase took over and the Index was trading at 90 in March 1932. Final Blow saw the Index drop to 40 in July which was the low of the era.

Conclusions
1) The First big Downfall could be followed by a pull back rally of somewhat less magnitude as short covering and value buying pulls the Market up.
2) Bullish think tank is convinced that the storm is behind while the Bearish camp looks for opportunities to go short as consolidation reins.
3) Big expectations built up during the Bull Run which in reality are worth nothing pull the market even down.

Options Strategy

2008-03-18T21:14:00.000-07:00

Options Strategy for 19th March 2008

Nifty is likely to gap up at 4720 but would it able to hold up there as to be seen,
Going by the situation right now I opine that post gap up opening it would correct to 4670 and would not break down to give up all the gap as of today.
a) Nifty 4600 Call could be bought at 120 -130 range for a Target of 180. Stop loss could be placed at 110, ideally what one can do is if it drops below 120 (by any chance) sell off and buy at any rise above 120.
b) Nifty 4600 put could be traded in the range of 60 – 80, stop loss could be placed at drop below 60 and any rise above 90 (by any chance) could lead to 120.

Now Options Strategy for Short – term with minimal losses and minimal profit but high probability of Profit
a) Nifty 4600 March Put Could be sold at 60 -70 and Nifty 4300 April Put could be bought at near about 80, while Nifty 4900 March Call could be sold at 30 -35 while Nifty April 5200 Call could be bought at 60 -65. If Near months Options Remain out of Money Next month Options would be near about free of cost.

Can Sensex Compared to Hangseng

2008-03-06T00:33:00.000-08:00

Sensex topped out at 21207 on Jan 10 2008 (uptil now top) and then bottomed out at 15332 (the recent low from the crash), now to make some money I am just trying to solve the mystery of what lies ahead for that purpose I am using history of other Major World Indices and drawing comparisons with the Sensex
So lets start the Journey
In this post lets have a look at Hangseng

(sorry I am not posting any images as of now due to some problems)
Hangseng reached a major top of 3949 in Sep 1987 then crashed to a low of 1894 in Dec 1987 app one can say 50% correction, after 6 years in Jan 1994 it made a new top at 12599 in Jan 1994 the new top was app 3 times the previous top of 1987, now it again broke down to a level of 6890 in Jan 1995 app 45% correction. Then in Aug 1997 it again went upto 16802 and corrected upto 6708 in Aug 1998, this time round the correction (I prefer to say correction you may call bear market) was a whopping 60% app.
Now Lets Compare the Hangseng Journey to the Sensex
Sensex Formed it first Major top at 6150 in Feb 2000, then crashed to a low of 2594 in Sep 2001, a correction of app 60%. Now my feeling is that at 21206 in Jan 2008 we have formed a major top after 8 years and app 3.5 times the previous major top.
I have concluded this by comparing hangseng history this way
Hangseng Sep 1987 say 4K
Hangseng Dec 1987 say 2K
(correction was big but low was targeted in a small time frame)

Sensex Feb 2000 say 6K
Sensex Sep 2000 say 2.5K
(correction was bigger and low was targeted in bigger timeframe)
Hangseng July 1991 say 4K
(previous top was captured 4 years down the line)
Sensex Jan 2004 say 6K
(previous top was captured 4 years down the line)
Now from here some divergence takes place in my views
While Hangseng reached trippled from previous top of 4K (1987) to achieve 12K in 1994, 7 years down the line and sensex too achieved the same feet ( a little bit more 3.5 times) in 8 years, I feel the situation is comparable to Hangseng 1997 wherein the hanseng was at 16K i.e app 4 times 1987 top in 9 years
the reason being
1) One Emerging Market Mexico IPC has achieved same feet by quadrupling from 2000 highs and then is breaking down
2) In 1994 Hangseng breakdown was comparatively slow, it took its time and also the rise was faster compared to breakdown, while in 1997 the fall was quite fast and big example being August 7 1997 Hangseng was 16820 on Oct 28 1997 Intraday low was 8775 app 50% fall in just 2.5 months with the most terrible fall being from an high of 13473 on Oct 20 1997 to a low of 8775 on Oct 28 1997 i.e a fall of app 33% in just 8 days.
So now if we suppose that we are going to mirror Hangseng of 1997 then 5500 or max 5700 should not be pierced in midterm while in extreme short term 5200 -5250 should not be pierced on the Long side while on the short side one cant time the fall, Best case option than would be to sell 5200 or 5300 call option for this month has and when Nifty approaches 5100+, stoploss could be placed if nifty trades above 5400.