What's new?
New stock ideas will be updated soon.
Click on the 'Subscribe Now' button to get these calls instantly.
Contrary to our bearish views, the DOW zoomed past the mark that we were watching - 13710 to 13870 and closed at 13860.
At this point, we still remain bearish and though the indices don't look like stopping, we will remain on the sidelines. Our short of AKS is in the red by abt 5% and that remains our only position.
India:
We have had a beautiful start to the day. However it has opened with a gap-up and this marks the exhaustion gap. We should see some weakness here. In addition to this, it is now at the rising channel and should come down from here.
We bought a few more options yesterday and our average on all the option is now 74. Though the exhaustion gap is a bearish sign, we are not sure if we need to add onto our positions as corrections usually don't begin in the third week of the month. In case we decide to add onto our positions, we will update the same.
Since the Index has crossed the 15100(Sensex) and 13710(DOW)mark, that we were observing, it is really something unexpected. We don't see a reason to enter the market right now, apart from going short. Since the market seems to have a mind of its own, we will keep our short positions light.
Today, we will discuss how profitable and risky the game of options can be. As you might be aware, options are inherently a high risk/profit instrument. In addition, their inherent loss of value thru time decay makes us use options very rarely. Before we go into when Options need to be used, let's take a look at yesterday's trade.
For instance, yesterday we bought the 4400 July PE at 85 when the Nifty was trading at 4400. Though the Nifty did close later in the day at 4387, ie, 13 points down, the put actually closed at 75, ie, it had lost some value because of time decay.
The lesson that we can learn from this is that - Options should be bought near to the close of the day and need to be sold in the early hours of trading. Also options should be used when a large swing is to be seen. We used options(call) in early April because we saw that a huge swing was in the offing and had fabolous gains. Similarly we use them now because we feel that the trend is changing to the negative and we see a good swing in the downward direction.
If, for instance, we had traded options in the month of May, the profits would be very less, even if we got the index movement correctly, because the time decay would have eaten away what little movement was made by the indices.
That being said we will put an order at 49 for 4400PE today and we will see if it will be executed. This will be the last of the options that we will buy.
We bought Nifty 4400PE(Jul 2007) at a price of 85. This is a positional call.
Today is the Infy results and will have some definite impact on the market.
Market recap:
The DOW and FTSE had a bad day today and down almost 1.2%. The resistance that we have been talking abt, came into effect and sent the markets tumbling. In addition, we feel that this is definitely the start of the correction and as can be marked on the charts, the logical first target will 13000(38.2%). Also take a look at the RSI. The band, as shown in the chart, has been acting as a resistance and support. So far the resistance has worked. Will the support work? Refer the chart for more details
The Nikkei and Hangseng, though down almost 200 points at one time, have recovered marginally.
India:
Today is the big day - Infy results. That being the case, the global markets are sure to put pressure as well as we were at strong resistance.
In addition to the resistance, take a look at the candlesticks. We had a doji(Point B) and a bearish engulfing (Point A and B). Both are bearish patterns and go in line with our bearish view. Notice the candlestick pattern once the RSI starts moving down - Doji and bearish engulfing in both the cases. Refer the chart for more details.
Depending on price behaviour we might build short positions today. We expect the market to hold up in the morning because of the Infy results and then subsequently go down. If that is the case, we can build some short positions today.
As we have previously noted, we have the following view on the markets:
- US DJI - bearish. The view will change only if we cross 13710.
- India Sensex- topping. We said our target will be 14950-15100. The Sensex hit 15007 before closing around 14965.
Having said that, we feel this week will make the direction clear. Use oppotunities in the start of the week to unload all holdings. As we approach the middle of the week, we can build some short positions in the Indian market. In the US markets, we already have short positions.
Let's look at some of the secondary indicators:
Nasdaq Bullish %:Though the Nasdaq has been making new highs, the BP index has failed to make new highs. This negative divergence has helped in timing previous corrections and goes in line with our bearish view. The chart provides more information.
DOW Bullish %:The chart is self explanatory. The negative divergence bolsters our bearish view.
