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 Power of Positive Thinking

The overnight rally in the US has spurred the Asian markets into a higher open. The trends are clear. Equities and Commodities are up and Dollar is down. Dollar in particular broke below a significant low that it had made of 77.65 in Dec 2008. This development coupled with the momemntum of the fall in the last few days, opens the possibility of a retest of the 75 or even 71 levels in the dollar. And man would that be good news for equity and commodity bulls!!!.

After having said everything that really matters in my first para itself, let me try and fill up the space in the other paras!!!. I will start with my few stock and indices trades.

RIL: long since 31st July from 1960. Target 2300. Stop 1870.

ICICI Bank. Long since 30th July at 745. Target 840. Stop 720.

Infosys: Continue long positions.

HSI: long since 31st July at 20670.

HSCEI: Long only above 12460.

KM1: Continue long positions.

NZ1: long since 31st July at 4610. Stop revised upwards to 4580.

That was not too difficult. Even I know how to do Ctrl C Ctrl V :). Ok now the only interesting thing that one can do is to try and predict where the Nifty is headed. As a trader I would follow my trading system and focus on making money and not bother about predictions, but this market of ours rewards those who can give intelligent two minute sound bytes. How many famous traders do you know of in India?. But celebrated strategists? That is another matter isn't it? There are a few even I can name. And you know what? Apparently being right is not necessary. All you have to do is pontificate. So why not add my two bits of analysis to this?.

The Dollar has broken below its Dec 2008 lows as I have already mentioned. S&P 500 is already trading above its neckline of the Reverse Head and Shoulder. The target for the S&P is 1200 in the coming months. The monthly RSI on the Nifty had never gone to oversold levels. Currently it is trading above its crucial 50 levels indicating that we are now in a bullish phase. Typically for the Nifty, once the RSI crosses 50 levels the bullish phase continues for a few months.

From another perspective, the Nifty is trading around its neckline. A break above 4750 will conclusively seal the matter. The target for the Nifty (based on this Reverse Head and Shoulder) comes to 7200 odd in the next one year. Given the weakness in the dollar and its potential to move to 71, the strength in commodities and equities is likely to continue. All this makes me comfortable in stating that the Nifty should cross the Jan 2008 highs of 6300 in the next one year if not earlier.

I feel better now. I am now clearly and unambigously on the side of the bulls. Finally, we all know to err is human and that a mistake is a mistake. But in the case of our markets not all mistakes are alike. It is ok to be positive on the markets and wrong. It is unforgivable to be negative and wrong. That is the power of positive thinking!!!