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A roller coaster day for the US markets. Up almost 130 points at one time, they then plunged and took support at the 50EMA and eventually closed 8 points down. This is a very bearish sign. Accordingly we have closed our longs and added a short term short position. The only way to be sure that the trend hasn't changed is for the market to close above the trendline that is marked on the chart.
India:
As we mentioned yesterday, things can move either way. However, given the bleak situation in the US markets, we remain extremely cautious. We share below a chart that was first shown by Vivek Patil that shows the formation of falling channel. We will issue stock specific sell calls in a seperate post. Unless the markets show otherwise, ie, breach of the falling channel, on the upside, at approx 14550 or takes support at 14300, we will assume the worst. We will reenter positions once any of those conditions mentioned are achieved.
We sold AKS short at a price of 37.57. This is the initial entry and based on the price behaviour we will add onto this position.
We sold ATHR at 30.59.We had bought this at 30.49 and our gain works out to a measly 0.33%. With this we are out of all long positions in US. We will initiate short positions slowly.
The US markets took a tumble on Friday with the DOW down 1.37%, the NAZ 1.09% and the S&P500 down 1.29%. More importantly it broke the crucial support at 13400.
The coming week and especially Monday and Tuesday will remain crucial. The 50EMA stands at 13291 and that will remain as the next support. Whether this will hold or not will decide what happens next. Given these uncertainities, we choose to err on the side of caution. Therefore we don't advocate a buy on decline strategy.
We might have a mid session market update depending on any adverse market action.
The Nikkei is holding out well. The HSI has broken onto 52 week highs and that is encouraging as we feel the Sensex lags the HSI by a few weeks.
India:
We closed the day sligthly in the red. The adverse reaction in the DOW might suggest some impact on our markets today. However the support we have marked is at 14300. If this fails the next support is 14000. This brings out 2 scenarios. If the 14300 support holds we will go onto make new highs. However if support is found at 14000, we will not make new highs and use the pullback rally to exit our longs.
Looking ahead, if 14300 is held and we go onto make new highs, the ensuing Wave C will target 12350. However if Wave C starts without making new highs, the target will be 12800.
Our preferred scenario is we go onto make new highs and we feel this is supported by the fact of the listing of the mega IPO(DLF) and FPO(ICICI) over the next few days.
We came across this article on Yahoo! Finance - Seven Money Mistakes to Avoid. Let's review this article. Our comments are in Red:
1. Saving with the right hand and spending with the left
DIAGNOSIS: Mental accounting
SYMPTOMS: Keeping a savings account that pays 5% interest while paying Visa 15%; thinking a tax refund equals mad money; obsessing over the price of a new car, but failing to monitor the weekly grocery bill.
We agree to this point to some extent. However when it comes to the grocery bill, I think that's stretching the point a bit too much. Most people are penny wise and pound foolish. They will cut coupons, go 15 miles to save 50 cents. However when it comes to the big ticket expenses, they overlook them. We believe in the opposite concept - penny foolish and pound wise.
2. Playing it too safe
DIAGNOSIS: Loss aversion
SYMPTOMS: Quick to sell winning stocks but slow to sell losing ones; putting too much cash in money-market funds and not enough in stocks; reluctance to trade away what you already have, even for something more valuable.
This is one of the biggest mistakes that people make. As we have repeatedly said - everybody needs to invest. But what we have seen is people view investments only from a 'tax-saving' aspect or to buy a house and refuse to explore beyond this. You really need to be investing in different areas than the 2 mentioned above.
3. Looking into a cloudy crystal ball
DIAGNOSIS: Misunderstanding risk
SYMPTOMS: Putting too much of your savings in your company's stock; having very low insurance deductibles; thinking small-cap stocks will rise forever.
Most people don't understand risk at all. This is also a very neglected aspect in everyday life.
4. Living in the moment
DIAGNOSIS: Procrastination
SYMPTOMS: Failing to enroll in a 401(k) plan; not coming up with a monthly budget; waiting until the last minute to make your IRA contribution.
We think that this point is also a bit of an exaggeration. We believe that the monthly budget, etc is too highly focussed by most financial columnists. Remember that a budget has only 1 use - to make sure that you have the requisite amount of money left for investing. What people tend to do is get so focussed on the budget that they fail to concentrate on building their investment skills. The budget becomes a be all and end all which is not the actual purpose of the budget.
5. Throwing good money after bad
DIAGNOSIS: Sunk-cost effect
SYMPTOMS: Hanging on to a lagging mutual fund because you paid an upfront sales charge; making repairs that cost more than your car is worth; making decisions about how to spend time or money based on how much time and money you've already spent.
Yes, we agree with this. This goes in line with the GOLDEN rule of trading - cut your losses short
6. Letting your ego get in the way
DIAGNOSIS: Overconfidence
SYMPTOMS: Frequent trading; concentrating picks among a handful of "surefire winners"; thinking you're an above-average driver.
We disagree with this. You need to be constantly monitoring your investments. At the very outset, you might lag the benchmark indices but over a period of time you will gradually improve and be able to beat the benchmark indices hollow. Remember you can make money when the indices are going down by moving onto the short side. This is again the beef we have with most financial columns. They look at the market as a one-way, up street. Nobody ever mentions abt going on the short side.
7. Following the crowd
DIAGNOSIS: Herding
SYMPTOMS: Buying ethanol stocks because everyone says they're the next big thing; dumping your stock fund after a steep market decline; taking stock tips from family and friends.
We agree on some points and disagree on others. We disagree when the trend has changed, you better follow the crowd and get out of your long positions. The age old saying is very apt here - the markets can remain irrational longer than you can remain solvent. However where we agree is that you need to get back in the market once the trend changes and the markets start moving up. In fact we believe that buys made during this period turn out the most profitable.
