Friday, April 23, 2010

Harvesting Time in Intra-day Futures Trade : Through Stockezy

In my last post I had mentioned about this community investment platform called Stockezy ( where investors in stock markets help each other to firm up their own investment decisions. And lately I have been closely associated in rendering advice to this community. In the following paragraphs I would like to illustrate the nature of  my recommendations and the outcome of such calls.

On this day of 22nd April 2010, volatility ruled the roost in Indian stock markets. One must admit that it was a tough day in office for traders. What started off as a uninspiring and unsteady rise from day low, accelerated into a  spectacular bull charge at around 11AM. And from 1.30PM to 2.30PM markets threatened to break free from day's high of 5332. But that was not to be. Quite contrary to expectations, markets tumbled suddenly and dramatically to retrace almost all the intra-day gains, catching most traders on the wrong foot.

If we analyze intra-day movement of Nifty, we find that Nifty rocketed from day low of 5221 to a high of  5332. This means that Nifty notched up an intra-day gain of 111 points from day low. But from day high it plummeted to 5246 in the last hour of trade, which means that Nifty lost 86 points from day high. At close Nifty managed to lift itself by 20 odd points, but the damage was already done. Bulls were caught on the wrong foot and there was no place to hide for many long-side-intra-day-traders.

Against the backdrop of circumstances just described, let us now evaluate the performance of intra-day trades in stock futures which were executed as per my recommendations. Today I had given two sell calls of stock futures during market hours. This was at a time when the market was reverberating  with the sound of bulls all around. Many may think that as an act of bravado or even misplaced defiance. But before jumping to any conclusion, it will be my earnest appeal to thoroughly examine the performance of these sell calls:-

1. Siemens Apr Futures:- Recommendation was for selling one lot between 734/736 for target of 725 with stop loss at 738. The scrip made a day high of 735 and fell sharply to hit the target. The point to note here is that in a raging intra-day bull market, the high of the scrip was exactly within the recommended sell price range. It was a Rs 2/- range given for a scrip worth  730 plus and yet the scrip could not break free of this tight sell range. Moreover, notice the tight stop loss of just Rs 2/- above the recommended selling price.
Now for calculating profit, if we take the average of the recommended price range then our sell price works out as 735. This sell position met the given target at 725, thereby accruing a profit of Rs 10/- per share. Since the lot size is 752,  
total profit  = 10x752 = 7520/-

2. India Infoline Apr Futures:-It was recommended to be sold between 117/118 for target of 115 and stop loss of 119. The scrip reached a high of 117.35 and then started falling. As the scrip fell, the target of 115 was met. If we take a careful look, here again the scrip could not break out of the recommended selling price range of 117-118. Even the stop loss given was only Re 1/- above the selling range.
For the purpose of calculating profit it is assumed that one could sell at 117.25 and then covered the position at given target of 115. Since the lot size is 2500, 
total profit = 2.25x2500 = 5625/-

Overall profit in intra-day trade from selling two stock futures = 7520+5625 = 13145/-

Tuesday, April 20, 2010

Stockezy - Sharing Community Sentiments For Investment Decisions

To all my followers and readers I owe an explanation for being so quiet for so long. One might ask as to where I have been all these days and I'll have a tough time answering satisfactorily. I will sound indifferent if I tersely say that I have been busy. But that is the complete truth, standoffish as it may sound.
I have been busy connecting to a community of 15000 plus members who are into investing in stock markets in India. This community interacts at a platform hosted by which is fast becoming the leader in this novel concept of community investing.

As a social networking platform for investing in stock markets, Stockezy  can also be termed loosely as Community Investing Fund, akin to Mutual Fund. The essential difference is that here every member is a Fund Manager controlling his own funds. The community aspect only helps each Fund Manager to tap intellectual resources of other members of the community, which in turn helps him in firming up his own mind before making any stock market investment.

As Stockezy grows in strength, the following announcement from the site reaches the length and breadth of India, echoing across various dailies and financial newspapers and periodicals:-

Social network to connect, educate & empower investors.

Stockezy is an effective platform where investors help investors and work together to make informed financial decisions. Whether you are a seasoned trader or new to stocks; Stockezy is the place for you.

You may check out my contribution to , a pioneer site on social investing on internet, by following  the links given below:-

Saturday, April 10, 2010

Period of Uncertainty Persists: Will Markets Witness Deep Correction?

Indian markets have confounded most investors waiting for a deep correction to invest money for long term. The rally in Nifty that began on 06 Mar 2009 from a low of 2539 has been relentless in its intensity and reach. What initially seemed like a bear market rally has turned out to be a major Bull turnaround. Most retail investors have been left out of this stupendous rally and have been waiting ever since for a correction to invest for long term.

On 08 Nov 2009 when Nifty had closed in previous session at 4796, I had written a post titled Sensex And Nifty : Expected Movement Ahead. In that post I had mentioned that Nifty will reach the selling zone of 5320-5580 before a serious correction takes place, provided we receive positive Trans Atlantic Triggers (TAT). Having received positive TAT, on 15 Nov 2009 I again reiterated my point in a post titled Trans Atlantic Triggers - Did You Receive Those Signals? by concluding that "Nifty and Sensex should reach their respective selling zones before correcting" . At that point Nifty was trading at 4999 and from there marched on to reach a high of 5311 on 06 Jan 2010. After that Nifty corrected to a low of 4675 on 08 Feb 2010, a decent correction of 636 Nifty points.

The journey upwards from 4760 has now taken Nifty to a high of 5400 on 07 Apr 2010. Remember Nifty has again entered its selling zone of 5320-5580 and should witness correction any time within this selling zone. The headroom available from Nifty closing of 5362 on 09 Apr 2010 is only 200 odd Nifty points before any correction takes place.

Now the pertinent question that begs an answer is "How much will Nifty correct from its selling zone?". In other words, where will be the first support for any correction so that buying can be initiated? Well one can expect a support for Nifty in the region of 5050/5100. Hope you make the most out of trading with expected Nifty movement.

Tuesday, February 16, 2010

Global Equity Markets 2010 - Highly Volatile Mood

Global equity markets have behaved like a yo-yo for the past month. Markets from China to US have all displayed great volatility, which can only be construed as harbinger for future distribution. I say distribution, and not accumulation, because at market high that is what is most expected. This definitely is not good news for die-hard bulls, because such high volatility during distribution is only indicative of very strong down move. As for traders, the present high volatility can be best described as killing, since buying or selling at technical levels is proving counter-productive. Let me bring forth the plight of traders in this highly volatile regime.

A trader enters into a buy trade after confirming with the help of price action that an up-move is in place. A scrip qualifies for buy after it trades above a particular price, prompting the trader to initiate a buy trade. Then suddenly the market reverses gear owing to its volatile characteristics and buy trades turn into losses. Similarly a scrip is considered to have become very weak below a particular price, and so the trader initiates a sell trade. No sooner that is done, there is a strong bullish surge and the sell trades are virtually pulverized.

So what is the solution to the present condition. I am listing a few suggestions for the benefit of traders and investors alike :-
  • Investment decisions should be deferred for the time being, specially long term investing. That is because equity markets have yet to touch their intermediate bottom. For Nifty, intermediate bottom could be as low as 4000 while in Dow Jones we can again witness 6400 level soon. If you are a long term investor then wait for levels just discussed above, before jumping into immediate investment.
  • Traders should trade strictly along an established short term trend only. And then one should take small profits off the table.
  • Wait patiently for correct buy and sell levels for initiating trade, and do not enter into trade in haste.
Year 2010 will be a challenging year for traders as well as investors. So become mentally tough to take the challenges in your stride. My good wishes to all !!

Monday, January 25, 2010

US Markets Plummet On Good Results And Flimsy Grounds

Last three trading sessions were literally devastating for bulls in US markets. Consider this fact. Dow Jones took most of November, full December of last year and half of January 2010 to rise from 10100 level to 10700 level, a gain of roughly 600 points. And it took just three trading sessions for the bears to erase these gains in Dow Jones. What alacrity on part of the bears in going about their business!

One must keep in mind that this has happened in the midst of result season. Companies have done fairly well. In fact some companies like Intel and Google have done exceptionally well. Intel had posted the best quarterly result of its lifetime. And how is that news greeted by Wall Street? The scrip is sold off, driving the stock price to nosedive into negative territory.

Mind you, here we are not discussing a high beta stock market, nor are we referring to any banana republic. We are analyzing market behaviour of the most developed stock market on this planet, a market that boasts of an army of highly evolved, rational and informed investors. Then what spooked the US markets so much that we had to become spectators to such sharp reactions? Comparable exhibition of panic selling was last witnessed in Oct 2008. But at that time there were enough global reasons to justify such investor-behaviour. What has happened this time around? To ferret out an answer let us dig deep into the state of affairs existing in the present global financial ecosystem.

The first bit of news that unnerved US investors emanated across the Pacific, from the dragon nation. Chinese central bank advised banks in China to go slow on lending. This was taken as a cue that China was feeling the negative effects of stimulus and hence was taking steps to slowly withdraw it. In limiting credit off-take, China was ready to sacrifice its growth curve. This action by the Chinese Government was not appreciated by Wall Street, and so in a gesture of utter disappointment US markets sold off.

In this episode I seem to have lost the thread of US investors' reasoning. Everyone has been accusing that China is fast entering bubble territory because of its loose credit policy. Such liquidity needs to be reined in so as to avert bubble situations developing in different asset classes. And Chinese bubble bursting will be 1000 times more catastrophic than Dubai default scenario. So far so good - I am with the thought process of US investors. If all that is true then China is taking measured steps to attenuate the effects of an anomaly existing in its financial system. It is simply taking corrective action gradually so that the world is not put into a crisis situation. We wanted China to promptly address its liquidity imbalance, didn't we? And if it has started acting judiciously in that direction, shouldn't we be happy? Do we have to express our happiness by selling off stocks indiscriminately? I am pained to admit but selling off Intel and Google shares at this point of time cannot be categorized as actions of any evolved investor.

The second tranche of bad news for Wall Street emanated from Washington. Well good or bad, its just a matter of perception. I don't think its so terrible, but Wall Street feels otherwise. Hence I leave it to you to decide. President Obama wants to tax Big Banks which had to be bailed out. He wants tax payers to be suitably compensated by these banks for having saved their skins during the height of financial crisis. He plans to extract $ 90 bn over a period of ten years as tax from these banks. Big deal!! How is it conceived as such a bad news for investors? These banks are today paying more than that to their employees as bonuses. And here the total tax of $ 90 bn is planned to be collected over a spread of ten years, which is hardly any negative. I wouldn't be surprised if Obama feels exasperated with such reaction from US investors on this tax issue. Who wouldn't?

President Obama also wants to limit the size of these banks and pass legislation to prevent them from proprietary investments. They will not be allowed to use their own money to invest in risky financial instruments. And they may not be allowed to grow so big by acquiring other smaller banks that their failure becomes unacceptable to any US government in terms of collateral damage that such failure will cause. President Obama points out that he is doing all this so that when these big banks take dumb decisions in future, the tax payers will not have to foot the bill for their mistakes. Very noble thought! Firstly the President is ensuring that big banks in future cannot gamble with the money of depositors, thereby making them safe destinations to park your money. Secondly, he is preparing the grounds to bury any bank that fails, without ever having to think of injecting tax payers' money into such a doomed bank. That will be possible since the bank will no longer be so big that on its way down it can devastate the entire financial system.

As one can see, the proposals are genuine and for the betterment of the financial system. By putting such reforms in place one is only going to ensure that US financial system remains protected from hurricanes caused by greed in the investment world. Global economy will remain stable only when US economy doesn't get jolted by crises caused by unscrupulous financial wizards, who have invented things like Credit Default Swap (CDS) and Collateralized Debt Obligations (CDO) . Then why has Wall Street reacted in such furious manner? Whose side are the investors taking - the side which is fighting to keep the investment world a safer place or the side which is constantly conjuring up some dirty tricks to dupe the investors?

Its time to see right from wrong. I hope US investors will come around and realize the long term benefits in President Obama's proposal of bank reforms. One should dismiss the politics in all this and assess it dispassionately for the merits. Of course timing of the announcement from President Obama could have been better, but that's no reason to dump all investment ideas like Intel!