Free NEWSLETTER for the week ending 7-11-2008

Hi Friends,

 

The week opened with fear and despair by recording the low of 2252 on Monday 27th Oct. The festival of lights did bring in a lot of brightness to the market. Stocks have bounced back as if the world's woes are over. We all know that the worse may not be over as yet but Friday saw fireworks across the board. Falling inflation, cooling crude and a host of measures by governments and central banks augur well for the economy in general and the market sentiment in particular. However, a reversal in fii flows remains the big trigger for our markets. Till that happens, confidence levels may continue to remain lower. In 3 actual trading days, nifty bounced back sharply till 2921,  a rise of 669 points almost 30% rise from high to low. This rise was in line with other world markets with Brazil rising by 29%, UK by 19%, Japan by 29% and Honkong by 34% from their respective high to low during the week. Starting from trading week ending 26 sept 08   sensex and nifty had fallen consecutively for 5 weeks till week ending 24th oct 08. Plan of action for the week investors who are trapped with their long holdings must make full use of this corrective upward move to gradually liquidate their positions from 3100 levels upwards. Traders holding long future & option positions from DIPAVALI may also plan to book profit on futures and calls on the gap up opening on Monday or around 3100 levels. Or can hold these by taking fresh puts of nifty 2800 to 3000 or short higher calls of 3300 and above.

 

In weekly   charts nifty has closed exactly at the Fibonacci 13 week moving average at 2885. Critical 5 week moving average is around 3131 levels. During the trading week ending 7th Nov, 3131 till 3168 should provide major resistance. Another thing traders must remember is that , now everyone is thinking of dead cat bounce at least till 3100+ levels but may be surprised to find nifty may not reach even that level and may start to fall from sub 3100 levels to retest recent lows of 2252. Or it could be that instead of a dead cat bounce, it may turn out to be a mega bounce till 200 week moving average at 3666 levels. Two critical levels on the down side to be kept in mind for all long position holders as mental must quit points are 2777 & 2633. Sustaining below 2777 may slide till 2633 & breach of 2633 can surely take nifty to retest or breach recent lows of 2252. Spot nifty may have a trading range of 3140 to 3254 on the higher side. 3254 may be reached with extremely bullish world market conditions that may even clear the path for further rise towards critical 3333 levels. On the down side critical support at 2633 should hold.

 

Markets on Monday should again open strong. Even markets across Asia and other parts of the world have no bad news to react to. Hence expect a +ve opening for Asian markets also. Even if other Asian markets open flat or weak, with the stimulus package given by RBI, traders should see at least a good gap up opening for Indian markets for Monday. One should expect at least a 500 point rally from the break out point to about 3200 to 3252 levels under normal circumstance. The momentum with which the indices are moving up shows further up move. Important technical indicators like rsi, slow stotch, w%r are clearly giving +ve divergences in the daily eod charts. Even most important indicator macd is giving bottoming out signals in the daily charts. All these technical indicators may take the markets up towards 3200 or higher levels in next few days. However since weekly indicators have not yet generated buy signals, there is every possibility of markets reacting negatively to any adverse news or world event. Traders and investors holding long positions since DIPAVALI are advised to book timely profit.

 

Traders are advised to keep their eyes & ears open and be extremely cautious as fiis have already taken out $3 billion in October itself. Be sure they have not pulled out such huge amounts for their daughter's marriage or for a package tour by ocean liner "queen Mary 2" to South East Asian countries. They exactly know what is in store for equity markets in next 2 to 3 years after 5 years of Bull Run. So it is wiser for investors not to wait like a sitting duck to see your capital melting away day by day at the hands of fiis & hedge funds. Ideal thing at this stage is to be bold enough to pullout the money during the coming anticipated dead cat bounce and either sit in cash or invest in secured tax saving bonds or provident funds. Confine yourself to intraday trading only without taking the risk of carry over of unhedged future positions. Avoid using or listening to terms like valuations, pe multiples, profit to book, ebdita margins etc. These terms sound well from MBA freshers or paper tiger fund managers but these terms lose their significance & sound meaningless in strong bull or bear markets. Instead focus on more useful & simple  terms like stock market cycles,  highs, lows & duration of last 5 bull & bear markets  of India &  other  important nations of the world , relationship of  one bull market  highs and lows and duration  to previous bull or bear markets highs & lows, fibonacci  ratios & its direct relationship to index & stock price movements. These will at least guide you as to where our markets may be headed in next 3 years whether to sensex 3000 or sensex 20000.

 

Two of the biggest mistakes most traders generally commit are: -- firstly, they do not follow the trend, having an ever lasting tendency of always trading against the trend. Secondly  not holding on to their gains thinking that gains will go away thus quitting early from  likely great gains and at the same time boldly holding on to their loss making trades for days, weeks & months together thinking that loss will be reduced or  will turn out to be a gain in a few days which actually never comes and   the loss gradually becomes so big that entire capital is wiped out or one is forced to quit at a much bigger loss. With this wrong trading habit, 5 times of gains are wiped off by a single loss. So if one wants to be a successful trader, then these two wrong trading habits must be rectified by firstly trading in the direction of the trend, secondly developing a habit of quitting losses early  and holding  on to the  gains by mentally shifting  must quit points in the direction of gain.

 

SHORT TERM CALLS:

 

Buy RELIANCE around 1335-1350 Stop loss 1275 Target 1410-1450+

 

Buy Mc Dowell around 850-860 if gets, sl 2% below cost, tgt 902-950+

 

Rest calls only for paid clients......

 

HAPPY TRADING.....

 

 

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