Monday, February 4, 2008

The Wise Analysts

The Markets are in a habit of doing this. Yes, they do have a habit of making a fool out of analysts. I keep saying this regularly in my newsletter because that’s what the markets do. The business channel CNBC keeps asking analysts everyday about the future of the markets. You would realize, on careful examination, that when the markets are going up, 90% of the analysts are bullish and 10% may still be bearish. In this case, the converse is also true, that in bearish markets 90% analysts are bearish and only 10% bullish. And when the markets do take a turn you would realize that these analysts also change their stance as quickly. All laugh at them that what they had been predicting all along has gone horribly wrong. But ever realize why they change their stance so quickly? Because that is where wisdom lies. You must understand that “markets are supreme”.

You can’t fool the markets but the markets fool everybody. So, wisdom lies in the fact that you follow the market rather than to go against it. Buy when the markets are going up and sell when they are going down. That is the only way to make money. And what do all of us small investors do? Exactly the opposite. We buy a stock because it is looking good. And then the price starts coming down. What do we do? Keep holding on to our position in the hope that the markets will recover. Unfortunately, hope does not work in the stock markets. The wisest thing for us to do would be to admit that the market has made a fool out of us and our bullish ideas and the position should be closed with a small loss rather than to let the losses multiply and let the markets make us bigger fools. That’s what the analysts do. They realize that they have been fooled and they move with the market rather than to defy it.

This is exactly what happened with me. You know how bearish I was a couple of days ago. I now realize that I was also fooled by the market. And suddenly, two days later the situation has become totally different. The Nifty, which was finding it difficult to go to its upper end of the range, suddenly broke its downtrending line (drawn over 25 days on the 30 minutes chart) and has now reached the upper end of the channel. So, the wisest thing for me, and all of us, would be to forget that bearish mood and to get ready to enter the markets with a long position.

I have been maintaining that on the longer term charts the range between 4500 to 5500-5600 should hold for sometime and I continue to hold that view till the Nifty breaks one of these 2 levels. For tomorrow, resistance lies at 5560-5570 and support near 5390 and a larger support near 5130. A closing above 5570 could show the Nifty going up to its next target of 5970.

No charts analysed today.

Happy investing!!!