Friday, October 3, 2008

Short Term Bullishness, Intermediate Term Bearishness

After the US bailout package was defeated in the House of Representatives on Sep 29 228-205, the Senate approved the same last night with a thumping majority 74-25, says Bloomberg. The package would be sent to the ‘House’ again Friday afternoon for reconsideration. Many republicans who voted against the package last time may reconsider and switch their votes in favour of the bailout package. Despite the Senate’s approval US stocks remain down today with the Dow Jones trading with a loss of 330 points. European markets also remained weak losing between 2 and 3%. Gold has lost a few dollars while crude has slipped to $94 a barrel. The only thing that remains strong in this kind of a market is the dollar, and who can forget our very own Nifty.

Nifty Daily Chart - Long Lower Shadows and Stochastics Bullish in Short Term

Seen above is the daily chart of Nifty. Just like it was seen a few days back, the Nifty again displayed long lower shadows on its candles, which happens to be a short term bullish sign. The 5,3 stochastics oscillator, too, slowed down by 3 days has given a buy signal. The Nifty seems all set for a short rise from here. Possible resistance levels for this short spurt seem to be near the two green trendlines drawn. For tomorrow, one of the resistances lies near 4043 and the other lies at 4075. The Nifty, on Wednesday, after touching a high of 4000.50 dropped and finally closed at 3950.75.

Well, the Nifty is displaying short term bullishness, as the charts suggests, but also, as is evident from the charts, we still happen to be in an intermediate term downtrend with the Nifty clearly showing a pattern of lower highs and lower lows since early August. Now, which of these trends will prevail in the short term is difficult to say. It could be a downtrend since there is bearishness all across the world. But that has been there since quite a few days now, yet our Nifty is displaying strength. The Nifty may decide to go up first, touch one of the trendlines, and then fall back. And finally, the Nifty may even decide to slip from where we currently are. What will be its final decision, will be seen tomorrow. Till then be careful at 4043, 4075 and 4100 on the upperside and 3800-3850 on the downside.

Please do
subscribe to my posts, so that all posts are delivered free to your inbox and you don't miss any useful analysis of the markets in the future.

Happy Investing!!!


  1. Mr.Vikas Sharma,you need to go back to school.We are in the midst of the greatest financial crisis since the Great Depression and all that you talk of is head and shoulders crests and troughs and your bollinger bands.Do they have bollinger bands for mouths i wonder.Take a look at what the real experts are saying.The Us economy is heading for the shit creek .Hot money from Pnotes and Fii's will dissapear from the stock market just as soon as it came in.

    Read this VERY INFORMED piece by Dr.Nouriel Roubini on the financial crisis.The Us economy is undergoing a cardiac arrest.That is the REAL ANALYSIS ...not your silly head and shoulders shoe shining shampoo charts .

  2. Some years ago there was a very prescient article titled The stock market as casinoby CP Chandrasekhar outling how "Hot Money" affects our stock markets.In that he warnedThe `comfortable' level foreign currency reserves, the strength of the rupee and the buoyancy of the stock market indicate a speculative wave that increases the Indian economy's vulnerability created by financial and currency market liberalisation and not its strength.
    With the collapse of the financial system in the West the time has come for these very same speculative forces to pull out their money from our stock markets.

    In this situation reading charts is as useful as reading the entrails of a dead pig.

    The stock market is falling swiftly, and you don't have the luxury of time. So I'll get straight to the point:

    If you haven't done so already you'd better sell or hedge your vulnerable investments now . If you don't, be prepared to suffer far deeper losses in the bear market of 2008 and beyond.

    But beware: Most brokers will try to talk you out of it.They have a hidden agenda. They want to keep you as a customer; and they know that, once customers sell their stocks, they often close their brokerage accounts.

    With this in mind, many brokers have been trained with up to seven sales pitches designed to keep you in the market come hell or high water.

    Broker Pitch #1: "Buy more." Their argument goes something like this: "Your stock is now selling at bargain prices. So if you didn't already own 100 shares, you'd probably be thinking about buying — not selling. Instead, why not double down and take advantage of dollar-cost averaging?"

    The more likely result in a bear market: Every time your stock falls by another Rs1 per share, instead of losing just Rs100,000 you'll be losing Rs200,000.

    Broker Pitch #2: "Hold for a recovery!" They argue that the "market will inevitably recover," that the "recovery is always bigger and better than any near-term decline," and that you should therefore "always invest for the long term."

    The reality: Bear markets can last for years. It could take still longer for the averages to recover to current levels. During all those years, your money is dead in the water. And don't forget: If the company goes out of business, your stock will be worthless and will never recover.

    Broker Pitch #3: "You can't afford to take a loss." If you insist on selling, brokers often come back with this approach: "Your losses are just on paper right now. So if you sell, all you'll be doing is locking them in. You can't afford to do that."

    What they don't tell you is that there's no fundamental difference between a paper loss and a realized loss.

    Broker Pitch #4: The "don't-be-a-fool" argument. "Stocks look very cheap now and we're very close to rock bottom," goes the script. "We may even be right at the bottom. If you sell now, three months from now, you'll be kicking yourself. Don't be a fool."

    The truth: Brokers don't have the faintest idea where the bottom is. Nor does anyone at their firm. And they know darn well that stocks do not hit bottom just because they look cheap. Worse, for their own accounts, brokers and their affiliates have been — and are likely to continue — liquidating shares, often targeting precisely the same shares they pitch to their customers.

    Broker Pitch #5: "The market is turning." If the market enjoys an intermediate bounce, which it certainly will at some point soon, this pitch is invoked. "Look at this big rally!" they say. "Your shares are finally starting to come back. After waiting all this time, are you sure you want to run away now — just when things are starting to turn around in your favor?"

    The truth: In a bear market, intermediate rallies actually give you the best opportunity to sell.

    Broker Pitch #6: The last ace-in-the hole in the broker's arsenal of pitches is the patriotic approach. "Do you realize," they'll say, "what could happen if everyone does what you're talking about doing? That's when the market would really nosedive. But if you and millions of other investors would just have a bit more faith in our economy — in our country — then the market will recover and everyone will come out ahead."

    The truth: Locking up precious capital in sinking enterprises is not exactly good for our country. Better to safeguard the funds and reinvest them in better opportunities at a better time.

    The bailout package authorised by House of Congress will not have much effect besides helping the scamsters,snakeoil salesmen and fat cats on Wall Street unload their toxic waste onto the tax payer.It is a Trickle-Up Bailout as indicated by Jonathan G.S. Koppell and William N. Goetzmann ,professors at the Yale School of Management.

    There will be sucker rallies and "dead-cat bounces".But sooner than later the stock market is going to come to its senses and tank because the fundamentals haven't changed.The reality is banks in the US do not trust each other anymore...the credit lubricant has dried up

    Satyajit Das author of Traders,Guns and Money knew what was happening much before all these cheerleaders on CNN,CNBC,NDTVPROFIT and the rest of the corporate sponsored circus clowns were mindlessly chanting the World/India/Emerging markets Shining Mantra.His views on Nuclear Deleveraging have now come to fruition.

    Readers are strongly advised to read Dr.Nouriel Roubini's pieceFinancial and corporate system in Cardiac Arrest.Prof.Roubini was laughed at when he predicted this crisis in mid 2006.A few days ago media commentators were swallowing their words,including the BBC who featured him on their Hardtalk program.
    Please read the Professor's words.I think we stand to lose sight of the larger picture by nitpicking on the meanings of "head and shoulders","shadows","bollinger bands","breakouts","triangles" when the rest of the market is in meltdown.

    Make no mistake.... we in India will experience the aftershocks of the US crisis.We are joined at the hip with them .