The absent pied piper

Signs of the rally faltering abound. US had its first negative week in five. The Commodity index (CRY Index) had a large drop last week. The dollar weakening has reduced in momentum. While none of the asset classes have changed trends yet it is clear that the momentum of the rally is waning. Whether this is just a phase of consolidation before we start another leg of the uptrend or a gradual trend reversal is not yet clear. The jury is still out on that one.

With regards to Nifty, I had bought it at 4550 with a stop at 4475. I will stay with that. If we hit the stop, I will get out of the long position but not go short. This is as far as my trading is concerned. But today begins a new week and we need to talk about what the future holds in store.

The stocks that have given the best returns this year include scrips like Jindal Steel (242%), JSW Steel (222%), Tata Motors(196%), M&M(191%) etc are the stocks to watch out for. If there is a trend reversal then they would be hit the most and if this fall is just a consolidation then these stocks could go up the most in the next rally. Whatever be the case, it makes sense to look out for these stocks.

That brings me to the point of the note. What constitutes the leadership of the rally?. The leadership of this rally is filled with those stocks that had been hit the most during the fall. The commodity stocks, auto stocks and as we go down the line banking, real estate and infra stocks. The worst hit during the fall have had the highest return. It is as if the market is telling us that there was no reason to hit those stocks down so hard. That thigs are not as bad as we feared. While I understand that there were excesses during the fall, we seem to have rectified those excesses. Surely we need a theme for the rally to head much further? Without that one underlying theme or story, it is unlikely that we will ever feel comfortable with this rally. We need a pied piper to play a tune that we all buy into for this rally to go further. And at this moment I cannot hear any.

That sounded good. The line about the pied piper I mean. In any case I am still long and will continue to be long until proven wrong by the market. Stoploss for long positions on the Nifty at 4475 and short positions possibly only below 4350.

The Curious Case of the Elusive Empanelment

The Nifty rallied strongly yesterday. In fact it gapped up above my buying trigger of 4515 and after a lot of soul searching I bought when the 5 min high was taken out at 4550. So I am now long the Nifty. The problem as everybody knows is that there is a strong resistance of 4700 lurking close by. But every trader is faced with this choice once in a while. What should one do? Buy in the belief that the resistance will be taken out or wait for a break out of the resistance to buy. While there is no definitive answer, I prefer to take the first option. And I have my stoploss at 4475 to protect me in case I go wrong.
International markets continue their rally. The S&P closed with gains but more importantly for us, most of the gains came in the last 2 hrs of trading and the S&P has closed at its high. The trends in equities remain up. Commodities too had a big day yesterday with almost all base metals, precious metals and oil rallying.
There are times when I feel that the trend has been going on for some time and therefore the best way to play the market from now on would be to take some delta neutral bets on markets. Two plays that I suggest are
1] Sell HangSeng and Buy Nifty and 2] Buy HangSeng and Sell Kospi.
Today I am in a good mood. So I will give you one more tip. If the Rupee falls below yesterdays low of 48.06 then I see it going all the way down to 47.0
And more to follow from next week. A few stock tips based on my incredible analysis of the market!!!. I know you are waiting with bated breath and want me to start today, but you will just have to be patient!!!.
After writing all this I completely fail to understand one thing. Any fund manager should have empanelled me just to be able to read this note. I mean seriously, who would not want to read this?
Talking about empanelments, I have this question to ask you which is in the form of a story. Please read the next para for your daily dose of entertainment. The story starts with our hero joining a startup broking company....
Our hero, let us say the Head of Equities, soon realises that the key to success is to get one large fund manager to empanel his company. Essentially he needs an anchor client and then the others he knows will soon follow suit. So he targets a very big fund manager who is also reputed to be a maverick. This fund manager could make or break the company our hero works in. As hard as he tries the hero does not get an appointment. Finally using all his contacts the hero manages to get 5 minutes of the fund managers time at 8.30 in the evening at the fund managers house. The fund manager greets him at the appointed time and tells him that he is intelligent enough to realise that our hero wants an empanelment and also realises that our hero is persistent. He justs wants to check our heros intelligence. If the hero can answer one simple question then the empanelment is his. The fund managers says that 1] he has 3 daughters 2] that the product of their ages is 36 3] that the sum of their ages is equal to the number on the door of his apartment 4] that the color of the eyes of his youngest daughter is blue. If our hero is able to determine the ages of his 3 daughters based on these clues then the empanelment is his for the taking. But he has only 5 minutes to answer. If he cannot get the answer the hero has to promise never to pursue the fund manager.
Well what does the hero do? For a moment he is tempted to believe that the fund manager is just fooling and that this is his way of throwing him out. But he remembers that the fund manager has a reputation of being a maverick but is essentially a brilliant person. So he puts his mind to it. He races against time, solves the question within the alloted time and returns with the coveted empanelment.
Question for all of you people out there. Can you put your mind to it and give me the ages of the fund manager's daughters.

To trade or not to trade

To trade or not to trade. Or to put it more accurately- to book profits or not... that is the question. The other question to ask is at what level would I want to book profits?. Do I book at current levels or do I wait for my important pivot of 4388 to be broken to sell my current long positions? While it might be best in the long run to go for the home run every time I trade, short term compulsions make it simpler to book once in a while.

After lot of thought, I have reached a healthy compromise. I will not wait for 4388 to be broken. Instead, if the market trades below 4525 I will cut my long positions. May be even sell a little short. And then take it as it comes. Clearly a rally above 4610 negates all this and hence is a good level to reinstate long positions or to cut any short positions that I might have built up. So goes my thinking.

World markets continue their uptrend. Commodities did slide a bit yesterday but that was not significant enough to signal a trend change. S&P rallied in the second half for a decent close after being more than a percent down mid session.

Normally I would end this note with some sporting story or a non market comment. But this has been an unusually quiet week with very little sporting action and no news worth talking about. Armstrong coming 3rd in Tour de France is good stuff but not the miracle one was hoping for. Massa getting seriously hurt in F-1 is news but what can one say about that?. The possibility of Schummacher returning as a replacement is different. Now that would be something. If he decides to return at the age of 40 and then even wins a race?. That would be stuff of legends!!!.