Reasons May Vary, But Markets Follow Technicals

Ever since the 23rd of January, when the Nifty was trading at around 6050, I predicted a deep correction in the markets. When other analysts were predicting that the markets may correct a bit and come down to 5950, I went ahead and gave a target of 4300. Crazy, wouldn't you call me? Call me whatever you may, I write what I feel about the markets. I don't care what effect it has on the sentiments of the people, I don't care what my readers will think about me, I just write what I feel. I know some will love me, and some will hate me, but nobody can ignore me. But let me ask you a question. If you were holding large positions in stocks and I tell you that we may go down to 5950, you may probably continue to hold on to your positions. At 5950, if I tell you we may go to 5800, you may probably still hold on and then I tell you that we may go to 5600, you might consider exiting your positions. But by that time you have already lost 300 points in the Nifty, and if you were holding small caps or mid caps then, God save you (because they are the first ones to come down). Wouldn't it be better that I tell you early on that such a scenario may exist so that you can exit your positions there only? You tell me what is better?

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Nifty Weakness Continuing, Next Target 5528

As I have been saying since over two months that the Nifty looks weak, the Nifty, as if listening to my analysis is doing exactly as I am predicting. This is not a good sign, at least not good for me. And the reason for that is that the market does not listen to any analyst and moves in a fashion known only to itself. And since there are a limited number of movements that the market can show, a few analysts may have their good days till the market decides to bring them back to Mother Earth. Not a good sign for me, because I'm having good days these days and only the market knows, how many days to prove me right. But, never mind that, my job is to analyse the markets and take trades in the direction of the trend and not try to fight and change the trend when the markets decide so. 

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How to Trade Using Risk-Reward-Ratio?

The market has a mind of its own. Which direction will it take in the future is unknown. Unknown not only to you, not only to me, but also to the best of analysts and astrologers. Yet you see the market full of such people who are trying to predict the markets, including yours truly. The reason why they are doing it is because it works, it actually works. But if you expect that you will get a positive result 100% of the times, then that is the biggest mistake you will be making. Technical Analysis, or for that matter, any technique, works most of the time but never 100% of the time. And that is the first and foremost thing that you and I need to understand.

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A View on the Forex (Foreign Currency) Markets

So, as expected, the market has fallen. It was probably holding on just because of the budget. As expected, the budget (being the last of the UPA - 2 regime), couldn't have been a reformist one. And because of the condition the country is in, it couldn't have been a populist one too. We are in dire need of money. With no reforms, it is sure to have an effect on the equity markets. Not only that, it will also affect the Forex markets and the Commodities markets. This post discusses just that - the effect of the Budget 2013 on the Equities, Commodities and Forex space.

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An Elliott Wave Analysis of the Markets

Some of my readers, sure, would be waiting for this post. I can say this because I had done an Elliott Wave Analysis of the markets once before and that post was a massive hit with my readers. A similar attempt is being made now on the current chart of Nifty. But a disclaimer goes with this post and that is that I'm not an expert on the Elliott Wave Principle. I have a little knowledge about it and I'm taking a risk of trying and numbering the waves with this little knowledge, a process which can even prove the best in the field wrong (at times). I would also advise my readers not to give too much of weightage to this post as the market may prove me wrong. But it still might turn out to be useful to read, in case my numbering turns out to be correct.

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Commodities Now Looking Good

The Nifty after touching a high of 5777, just short of the previous high of 5815, has turned down again and closed 55 points in the red and has come back into the range of 5630-5730 that it was moving within. As of now, there is nothing to suggest that the Nifty has finished its uptrend and therefore we shall wait for some more time before taking short positions again. However, there is one thing that is causing concern. On 1st Nov, the Nofty made a high of 5649, while the next day the low was 5682, a gap of 33 points which was still unfilled. The lowest low the Nifty had made since then was 5679. Today, it made a low of 5677 and thus has come back into the 'uncharted territory'. This suggests that the gap may now be filled. While it should find support near 5650, but a move below that would be bearish.

Attached above is the daily chart of Aluminium. As seen from the chart, the prices had started rising from a low of 100.60 in mid Aug to a high of 117.55 in a month's time and then started falling and fell relentlessly till it had a 100% retracement to make a low of 100.70. Attached below is the weekly chart of Aluminium and shows that it has been moving within a range of 100-116 since July 2010 (except for a brief spell of about 45 days when it traded outside that range on the upside. This shows that the 100 support is very strong which has been tested and held successfully on a number of occasions in the last 28 months. And such a strong support is unlikely to be broken easily.

Coming back to the daily chart of Aluminium, we find that after making a low of 100.70, is now trying to go higher but is repeatedly finding resistance near the 23.6% Fibonacci retracement level of 104.68. As mentioned in a few of my earlier posts, such a large move in any direction is usually accompanied by a fairly large retracement too. Though, a retracement to the 78.6% retracement of 114 is also possible, but I think keeping a target of 111 at the 61.8% retracement level should not be expecting too much. A level of 111 seems more reasonable, especially because it has found resistance near these levels in the past too. Though, it may very well start going up from here too but I have a feeling that it may come down to 101-102 before moving up again. Whether it does, or it doesn't, Aluminium is clearly a buy on dips commodity with a stop loss of 100 for targets of 111, 114 and then 116.

Attached above is the weekly chart of Nickel. The yellow line shown on the chart is just a horizontal line at 850. But the price movements have been such that it seems as if it is a wonderful trendline and see, how beautiful it is. Last three years the line has held despite being tested 7 times till now. The latest movement shows that again it has turned upwards after touching 850. Lets come to the daily chart of Nickel which has been attached below. As seen from the chart, it's a chart very similar to Aluminium. An upmove, a 100% retracement, an upward turn and now finiding resistance at the 23.6% retracement level.

As was the case in Aluminium, here too, I expect that every dip should be used as a buying opportunity. An opportunity to buy it between 860 and 865 would be brilliant. Keeping 850 as the stop loss, we should be booking partial profits at 915 and 935 and full profits near 960 (the 78.6% Fibonacci retracement).

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US Elections Today - How Will The Markets React?

Finally, the day has arrived. The campaigning is over and the battle between the two candidates is over. The war, however, hasn't ended. The next battle will be fought between the voters and it will be they who will decide the fate of the two candidates, President Barrack Obama and Mr. Mitt Romney. As of now, on the eve of the elections, the situation stands that Obama may have a slight advantage over Romney. Now the question is how are we affected as investors by what happens in the US? This post is written just to help us understand the consequences of the US elections.

Most people are of the opinion that the markets will improve if Romney wins and there is a likelihood of a huge decline if Obama wins. The reasons behind that is the fiscal cliff. Thomas Kenny, on About.com, quite clearly explains what the fiscal cliff is and what it could mean for the US economy going forward. Both people, Obama and Romney, have different logic and different plans of action as to how to handle the fiscal cliff. Jean Chua of CNBC explains their ideologies and writes about their plans to handle the fiscal cliff and how it may affect the US economy.

Uttara Choudhury on firstpost feels that Romney will cut taxes on capital gains and dividends for both individuals as well as for companies and hence the markets will react positively to a Romney win. Joanna Shatney of The Wall Street Journal wrote last month that the markets may tank if Obama wins whereas if Obama loses, there may be a short-term rally in the markets but then all attention will shift on how the fiscal cliff issue is finally taken care of. She is also of the opinion that getting the elections out of the way will be a positive for the markets no matter who wins. As an old saying goes - "The markets can handle good things and the markets can handle bad things. What the markets can't handle is uncertainty." And elections, "certainly", are uncertain.

Statistics, however, show different results. And you'll be surprised to read them. Kevin Mahn, on Advisor Intelligence, has dug out data of how the markets reacted to the election results right from 1900 to the year 2008. And it shows that the market has always reacted positively when the incumbent president has won. You can read the complete report here.

The Election process (casting of votes) in America has already started and we now know how important it is for us to know who wins. This link will give you live updates of the elections every few minutes. The US markets have also opened (at the time of writing) and, though with low volumes, are slightly in the green.

As far as the commodities markets are concerned, Naveen Mathur of Angel Broking is of the opinion that the commodities markets will react positively if Obama wins and will tank in the case of a Romney win.

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How To Get STAGGERING Returns?

Nifty went up for the second successive day today closing 25 points in the green. As mentioned yesterday, there are signs visible that we may not go down further and that the trend might reverse from the bottom made yesterday. Though, a pullback to 5630 was expected even in case of a bearish trend but the fact that it made a high of 5650 and that it even closed above that level of 5630 (closed at 5645 today) makes it look like the trend may have reversed now. If I have any short positions, I should be closing them now and start buying in small quantities. A confirmation that we are in an uptrend will come when the Nifty closes above 5730. We should be looking to fully invest our money at that stage.

A lot of people ask me what stocks have I invested in personally. Well, I do have some holdings but I prefer to put my money where I see good returns. And I find that in commodities. Technical Analysis and your discipline put to work together on leveraged products works wonders. I know some of you would be going - "Oh, Commodities. They are so risky!" Well, I'll explain why people call it risky. Let's take the case of Gold, where the minimum we can buy is 1 kg. and in multiples of that. Gold costing 31000 per 10 grams today means that one kilogram of Gold would cost Rs.31 lakhs. Now that doesn't mean that one has to pay Rs.31 lakhs to buy a kg. of Gold. In derivatives, whether stocks, commodities or currencies, one just has to pay a margin amount. Let's assume that there is a margin of 5% on Gold. In that case one would have to pay Rs.1.55 lakhs to take the position. Lets assume that a week after buying Gold goes up to 31500, thus gaining Rs.500 per 10 grams. That would mean a total profit of Rs.50,000 on a kilogram of Gold. Since the price of a kg. of Gold was Rs.31 lakhs, it translates into a return of 1.62% on the product. But when it comes to return on investment (since you had invested only Rs.1,55,000) it gives you a return of 32.26%. A very good return on investment, indeed.

Now, Gold could very well have gone DOWN by Rs.500 which would have meant that you would have lost 32.26% of your money and would have been left with only Rs.1,05,000. Though, the loss on Gold was only 1.62% but you lost 32% of your money. That can be quite costly and quite risky when you put your entire savings to do that. And for the majority of the people, 1.5 lakhs is like their entire savings. But, unlike stocks, there are mini and micro lots available too. For example, Gold Guinea is a lot size of only 8 grams, which means the total product value is Rs.24,800 and a 5% margin on that would be only Rs.1,240 and a Rs.500 drop in the price of Gold would mean you would have lost Rs.400/- only. Still a 32% loss on investment but a lot more affordable.

This is where Technical Analysis comes in handy. It ensures, in most cases (if you have good knowledge and experience), that about 70% of your trades turn out to be profitable. And if your rules are good - meaning if you maintain a risk reward ratio of 1:2, which means that for every rupee that is at risk, you are expecting a return of Rs.2 then it means that if you take 1 trade a day, it is about 20 trades a month. A 70% ratio would mean 14 of your trades would work out to be profitable and only 6 to be loss making. A loss of 30% on the losing trades would mean a 180% loss but on the remaining 14 trades you make a profit of 420% meaning a total profit of 240% per month. Of course, you don't gain so heavily because usually I look for about a movement of half a percent (instead of the 1.62% taken in this example) to book my profits. That would still mean a 7% profit on 14 winning trades and 1.5% loss on the 6 losing trades meaning a net profit of about 5% every month or a 60% return per annum.

With a little more risk and some luck, it could go up to as high as 8-10% every month. Isn't that good? I would say, it's awesome. And that's where I invest most of my money. I know there is a lot of number crunching in this post and this may even sound confusing to some. But I'm there to help. Do drop me a mail or leave a comment below to let me know that you need help and we'll talk. Yes, I can manage your money on your behalf and we can work out an arrangement. Yes, I know, you will be missing out on the fun and the kick that you get from trading but ultimately, you will be getting what you desire most - MONEY.

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Sudden Bullishness Seen on Bearish Charts

In the first half of the day, the Nifty was still uncertain about which way to go. It opened slightly in the positive, came down in the red, went to the greener territories again and then back into the red. Just like a yo-yo. But then a surprise came. The Nifty suddenly started going up at around 1 pm and then there was no looking back for it. It went up as if it was never bearish. But does that mean the bearishness is over. Maybe, but we would need more confirmation before we change our view to bullish. What's going to happen in the future, only the market can tell us. We can only make predictions and predictions can sometimes go wrong too. The only mantra to success is that we recognise the change of trend as early as possible and not try to fight the markets when the markets have proved us wrong. Maybe, just maybe, what we saw today was the first sign of the trend changing.

Attached above is the daily chart of Nifty. As can be seen, it wasn't a big range candle. With a high of 5624 and a low of 5583, it was a range of only 41 points, which is not even a percent. A blue candle just a day after a downside breakout is not what's surprising because a pullback to 5630 was to be expected anyways. What's surprising is the strong one-sided upside pullback in a bearish trend. This is indicative of a stronger uptrend. Another thing that's surprising is that till yesterday most shares were displaying bearish patterns, and today most of them were bullish. Just to give you an idea, I did a quick scan to see how many stocks moved more than 3% up or down. And out of the stocks that I track, there were 15 such stocks. Out of these 15, only 2 stocks were more than 3% down while the remaining 13 were more than 3% up. Forget me, don't YOU find that surprising?

Seen above is the daily chart of Zee Entertainment. Now, this is such an interesting pattern. As can be seen, yesterday it tried to go below the 5 month old trendline, couldn't sustain at lower levels and made a hammer after a fairly decent downtrend. A hammer formation after a bearish trend is always a bullish sign. But we still needed that one blue candle for confirmation. And the confirmation came today, and oh, what a "resounding" confirmation with such a long range candle. What gives more confirmation to the expected uptrend is the RSI shifting back upwards from 40. I expect Zee to continue to go up and I see a target of not less than 209, could be more.

Attached above is the daily chart of Hindalco. Till now Hindalco was beaten and battered and was keeping a very low profile and was keeping quite subdued. A long range blue candle along with an Engulfing Pattern candlestick pattern suggests there is more upside to see. What gives it more strength is the fact that the RSI changed direction from 40. Moreover, the stochastics oscillator couldn't have been better placed going below 20 and just changing directions and is showing signs of improvement. While signs are already visible, that this time the trendline will be broken through but for now, we shall play it safe and assume a target near the trendline at 124 (and more if the trendline is broken through).

Attached above is the daily chart of Bata India. There seemed to be quite a good support between 865 and 870, as can be seen from the trendline. With that broken through without difficulty and quite decisively, there seems to be no difficulty predicting that there is more downside yet to be seen. The levels? Well, maybe, 770.

Crompton Greaves, on its daily chart, had been moving along in a downtrend since the beginning of days the chart, had broken through the trendline and was now going through a pullback, which is quite usually seen after a breakout. Some people, including Franklin Sanders, call this pullback as the last kiss goodbye. This just means that it had decided to go, started to go, then just turns back as if it has forgotten the kiss, comes, kisses the trendline and then, finally, leaves never to come back again. Well, not in the near future at least. What I liked about this chart is that it came back to the trendline, almost within, kissing distance before turning back again. Moreover, the RSI and stochastics are placed just where I like them to be (specially when I'm looking to buy). I would say, a target between 155 and 160 should not be too difficult for Crompton to achieve. It may just have to "greave" around a bit near 140 and 147 which may act as resistance levels.

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It's Water, Fire and Darkness - Thanks to Sandy

So, the Nifty was indeed waiting for the RBI credit policy to act as a trigger to break the range. It finally went below the lower end of the range at 5630 and closed well below it at 5597, almost 68 points in the red. Well, some people would argue that it could be because of Hurricane Sandy too. I don't deny the fact that Sandy might have had an effect but had that been the case, the market wouldn't have traded in the positive before the credit policy was made public. The mayhem started at 11.

But what about Sandy? Well, the NYSE was closed for the last two days because of Sandy and chances are it would be closed today too. How will the US markets react to this? How will the world markets react to this? How will the Indian markets react to this? It is said that when America sneezes, the rest of the world catches a cold. What will happen to the world when America is "literally" drowning, burning and turning into darkness? Today, no charts for you, just some links where you can get some interesting tidbits about Sandy.

First of all the destruction caused by the Hurricane Sandy. This page will give you a detailed description of the amount of destruction that was caused by the deadly toofan.

Well, if you want to watch a video on it, you can get thousands on youtube. And this link takes you to one of them.

And if the Sandy has caused so much destruction, how much will it cost the US economy. Well, it's a wild guess, but just to get an idea, you can visit this page.

Whoa, that was huge! So, the markets are in for a long long long period of gloom, doom and disaster. You are not going to believe it but this page will take you by surprise.

But what about the people who bought 3 days ago? People who bought and then the markets shut for three days and then they open deep in the red, they are going to lose a lot of money. Yes, they are and they should learn from their mistakes. This page will give you three lessons that you learn from closed markets.

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