Another Doji - More Indecision

The Nifty, after opening went up to make a high of 4832, almost 90 points above yesterday’s close and then, like all other days lost all its gains to come 2 points below yesterday and then slightly recovered to close about 30 points in the green. In the process it made yet another doji, the third consecutive one.

As said in yesterday’s newsletter, and whenever we talk about them, dojis are a sign of indecision. It is a period when neither the bulls, nor the bears, are confident of what they, or the markets, are likely to do. In such periods, the markets keep changing hands. From the bulls to the bears and from the bears to the bulls. Nobody wants to carry her positions to the next day, lest the market should move against them. Such periods don’t last long in the markets. They are there for only a day or so. And then a decisive move comes. The fact that we have three consecutive dojis means that when the decisive move comes, it is going to be explosive. Which is why positioning ourselves in the right direction is important.

The charts don’t tell us much today (which is why we are not carrying any out today) except that instead of two, there are three dojis now and there is still a positive divergence visible. It is almost a certainty that after these dojis an explosive move is likely but the direction is unknown. Do we get any cues from the global markets? Not at the moment. Because at the time of writing this newsletter all European markets were about half a percent down (which is not too much of a cue), Dow is 16 points down and Nasdaq was slightly in the green. The only indication that we get from the charts is that it is more likely to go up than to come down.

Taking long positions in such a scenario is advisable because going up carries a higher probability than coming down. Moreover, we have a pivot low available at 4625 which becomes our stop loss for long positions. Buying calls is an even cheaper method of taking long positions where your loss is already limited and by maintaining a stop loss of 4600-4625, the loss becomes even lesser. And the profits, if the markets were to go up from here, would be phenomenal.

A surprising revelation. I carried out an analysis of the relative performance of the top eight world markets in the last four months, i.e. Dec 2007 onwards. And they rank in the following order, from the best to the worst. Taiwan, Dow Jones (USA), Kospi (Korea), FTSE (UK), Straits (Singapore), Hang Seng (Hong Kong), Nikkei (Japan) and Nifty. Considering that there are fears of recession in the USA, that is still the 2nd best ranked market. And our economy which is supposed to be the best of this lot is the worst performer. Clearly, these are times of excesses. People are being overly pessimistic and fearful. This is the time to grab the opportunities.

Today I leave you with one of the famous quotes by America's richest man and the world's greatest investor, Warren Buffett, who once said about himself and his company:

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."

Happy investing!!! This is the time to become greedy.

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