What next for the markets?

2012 did turn out to be the year of the bull as we had anticipated but the journey was not smooth to say the least!

It took some time before, things started moving on the policy end. The last three weeks saw the indices scale year highs, with the traders and investors cheering the fresh set of news coming in, be they the FDI in retail and civil aviation sectors, the decision to go ahead with price hikes.

The RBI helped infuse some more liquidity by reducing the CRR.

All this was on top of the QE3 from the Fed.

But this was the past,now the question is what next, as always traders want more! but lets be pragmatic. While the bullish mood might prevail, the overall markets are likely to consolidate the coming week before the next round of bullishness. Of course there will be pockets of profit in individual stocks.

But do remember, this is a market where you buy any major dips.

Wish you a roaring time ahead.

Return of the Bulls

It has been a while since our last post. A lot has happened and continues to happen.

But one positive, if you are a bull! is that the markets are making a firm start to 2012. Today the Nifty ended firmly above 5500, nicely in the hands of the bulls.

Our trading has been on and off due to too many technical reasons to name. Hopefully, that is behind us and 2012 will be a memorable year.

Join us as we journey to new levels of trading. Watch out for new offers and services.

Also, more frequent updates to our blog.

Till the next post.

Go long and enjoy the new bull run.

Buffetts Tech Bet

The “Oracle of Omaha” changed his mind on technology investments with a huge $11 billion ( 5.5 percent ) stake in IBM.

This is an amazing bet just for the reason that Buffett has always maintained that he does not understand technology based businesses.

This could be a sign of changing times and Buffett is not one who’s investment idea can be taken lightly.

The main reason could be that IBM is not strictly a technology bet. To quote Buffett

"It's a company that helps IT departments do their job better. It is a big deal for a big company to change auditors, change law firms" or to switch to a new technology vendor”

We could say its a bet not on the technological aspect of IBM but on its services side.

Only time will tell how this investment works out.

The lesson we can take from this great investors move is that there is a time when it pays to change your mind!

Wall Street Comes to Dalal Street

Today marked the day when the derivative contracts of S&P 500 and Dow Jones Industrial Average (DJIA) -- the two key indices of the US stock market - began trading at NSE.

This is an historic event indeed. Now we get the chance to speculate on these global indices. Some details below to get you started.

S&P^® Options Contract Specifications

Ticker Symbol
S&P500

Contract Size
250 units

Tick Size
0.05

Trading Hours
As in equity derivative segment

No. of strikes/strike intervals
12-1-12 strikes with 5 point interval and further 4-4 strikes of 10 point interval.

Expiry Date
3rd Friday of the respective contract month. In case third Friday is a holiday in USA or in India the contract shall expire on the preceding business day.

Contract months
3 serial monthly contracts and 3 Quarterly expiry contracts in the Mar-Jun-Sep-Dec cycle

Option Type
The options contracts shall be European styled which can be exercised only on the expiration date

Daily Settlement Price
Daily premium settlement

Final Settlement Price
All open positions at close of last day of trading shall be settled to the Special Opening Quotation (SOQ) of the S&P 500 ndex on the date of expiry (http://www.cmegroup.com /trading/equity-index/files/SOQ.pdf)

Final Settlement Procedure
Final settlement will be Cash settled in INR based on final settlement price. long positions of in-the money contracts shall be assigned to open short positions in option contracts.

Final Settlement day
All open positions on expiry date shall be settled on the next working day of the expiry date (T+1)

Position Limits
The Trading Member/Mutual Funds position limits as well as the disclosure requirement for clients is same as applicable in case of domestic stock index

Gold: What Goes up, must come down – the secret behind the $100 collapse

The question many investors are asking themselves today is, just what happened to the price of gold?

Did the world change? Did the problems in Europe go away? Did all the states manage to find funding to cover their deficits?

No, none of that happened, but gold still dropped $100.

It's all about market perception and timing, two things we've talked about many times before on the Trader's Blog. I don't know about you, but I remember when gold was over $1,400 an ounce and all I could see on TV where ads from gold companies extolling the virtues of buying gold as it is real money. Since the fall, I expect we'll see fewer of these advertisements on TV and in print.

So what did happen to gold?

Well, for starters there were some key technical levels broken. If you're a gold trader, but not a technical trader, you really need to learn how to read charts and see what other traders are doing.

Free technical trading course from MarketClub here: http://club.ino.com/join/lessons/

Secondly, there did not appear to be any other news to drive this market higher. When that happens, markets tend to fall under their own weight, and as many retail investors purchased gold, there was nobody on the other side of the market to support gold.

So the question is, is the move over in gold? That's a tricky one. I want to show you in today's video exactly how we're looking at this very emotional market. Every time we have created a video indicating that there would be some pullback in gold, we were bombarded by the gold bugs saying that we're crazy. When you see a market pullback as much as gold has, you have to have some respect for the market itself.

If we look at the price of gold today at approximately $1,330, it pretty much equates to what happened in the last 30 years when gold was trading at a high of $850 an ounce. If you factor in inflation over the last 30 years, gold is probably lower now than it was 30 years ago. So how good an investment is gold? I think gold is more of a barometer of fear than anything else. Clearly there are other investments in the marketplace that have better returns.

Let's get back to gold and what we think will happen. In this short video we analyze the market using our "Trade Triangles," the Williams%R, and the MACD indicator.

As always our videos are free to watch and there are no registration requirements. If you like what you see please comment on our blog and feel free to Tweet or e-mail your friends. I think there's an important takeaway message in this video - what goes up, must come down.

Enjoy the video.

Want to trade like Adam? Click here for FREE lessons.

Will Rising Prices Play the Party Pooper in 2011?

We have had rising prices on our mind and hurting our pockets the past few months.

The rising food prices have prompted a tighter monetary policy, at the expense of curbing growth.

Six rate hikes have not been able to curb the run away prices in 2010 and we are close to another hike in the coming week.

Food prices rose 15.5 year ending Jan 8.

Further tightening had already scared away some FII who had rushed in and taken the markets to a high in 2010.

The hope is that inflation will gradually subside in the coming quarters and calm nerves.

If that does not happen we could see the markets affected adversely.

2010 Year of the Bull

We have had a stronger than expected 2010 end. Its been a good year for the bulls with the NIFTY moving from 5232 to end at a strong 6134.

The start of 2010 was wobbly but momentum picked up later in the year. But that is past, now what can we expect for 2011 and the coming decade.

Lets look at the coming decade first. The India story is likely to get stronger and stronger as we progress towards 2020, that we can be sure of.

For 2011, if the external inflow continues, we can see the move extend. There is another point to note, the performance of the pharma and FMCG sectors points to a return of local consumers, which is a good sign for the economy.

Wish you all a prosperous and happy 2011. With many trading opportunities.

Another Stock Market Bubble?

First the news:

The Sensex rallied for the third consecutive session led by buying across all the sectors. It surged over 800 points and the Nifty nearly 249 points in the last three sessions to close above 15,600 and 4640 levels, respectively.

The Nifty has moved from the lows of 2500 levels in late 2008, to the current 4600 levels.

Meanwhile across in China,

Guo Shuqing, chairman of the nation’s second- largest bank, told reporters in Beijing today. “There are uncertainties in the economy and bubbles in the capital market,”  “China’s banking system still has excessive liquidity.”

and now some news from the US.

A prominent banking analyst said on Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010.

Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-U.S. banks and private equity funds to shore up the banking system.

"The difficulty at the moment is finding enough healthy banks to buy the failing banks," Bove wrote.

I have been skeptical of this rise since it began read the post here.

and still believe that this is not the market to be investing in. If I had to make fresh investments, I would wait for the next panic.

As short term traders, we are doing good.

So, what is the short term prognosis ( for traders ). You can expect to see the 4700 levels within a few sessions. More predictions, after we touch 4700 levels.

In the mean while optionwala is planning a futures trading service plan soon. Will keep you informed.

Good luck with your trading!

Dollar's Demise?

After Russia and China, today the Indian view on the dollar was made public. Bloomberg reports quoted Suresh Tendulkar, an economic adviser to Prime Minister Manmohan Singh, that he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

“The major part of Indian reserves is in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said.

Already China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

The realization about the consequence of the huge US debt is just about being comprehended. As this grows you can expect the hold of the dollar as a reserve currency to weaken considerably.

The Day of the Bulls or Fools?

Today turned out to be a historic day of sorts.

After the clear cut verdict in favor or the UPA at the center, it was expected the markets would do well on open. But 2 circuit filters and trading being halted on the bourse was not expected by most.

A short synopsis of the days proceedings to quote moneycontrol.com.

Trading on both the BSE and the NSE has been halted for the day as markets hit a 20% upper circuit, after re-opening for trade. At the beginning of today's trade, 9:55 am, the markets were locked at 15% upper circuit and exchanges halted the trade for two hours.

The 30-share Sensex closed 2,110.79 points or 17.34% higher at 14,284.21 and the Nifty surged 651.50 points or 17.74%, to settle at 4,323.15. The Sensex saw the 14,000 mark and the Nifty surpassed the 4,300 level for the first time since September 22, 2008. The Nifty May futures ended with 46.85 points premium.

 

Now, the question to be asked. Is this rally for real or are the small investors getting into a trap.

Does a stock market rally predict an upturn in the economy? Has all the excess in the market played itself out?

I do not think so. But then as it is said the stock markets can be illogical longer than you can stay liquid.

It is still advisable for investors to be cautious.

From a trading perspective, our option trading helps us make money, even if our prognosis of the market trend turn wrong.

We tend to stay neutral on predicting the next course of the markets.

Our focus is on strategies that save our skin in the long run and when events such as today's happen we take hope a bonanza.

Yes, we did do pretty well today!

A Quick Guide to the Bank Stress Test - Geithner Plan

 

Overview of the Geithner Plan and the problem it is supposed to solve.

Investing Just Got Harder - Sensex 12K

The huge jump up in the indices past few week and its a feeling of déjà vu for investors. No one was expecting such a sharp one sided rise, and I am sure we will get many explanation in the days to come.

As usual, we have the prognosis of a recovery around the corner just because the Sensex has jumped. I wish it were so simple to predict the economy.

The investor faces a big problem now, most have stayed away from the markets and now wish they had jumped in at the "bottom". Its a pity that we never learn from our past mistakes.

Investing is a journey and not a destination. There are times to invest and times to sit out. Never let the movement of the markets force your hand.

The technical side of the market is of more use to us short term traders. We enjoy all the volatility and craziness.

So, would I be jumping onto the bull wagon? not really until we have the month of May out of the way. Lets ride the wave while it happens.

Just keep your investing decisions separate from your trading decisions.

This is not the time to enter the markets as an investor.

The Bottomless Pit - Dow at a 10 Year Low

Yesterday, the US markets traveled back in time. The Dow Jones industrial average tumbled 251 points to its lowest close since May 7, 1997, while the Standard & Poor's 500 index logged its lowest finish since April 11, 1997. Both indexes have lost about half their value since hitting record highs in October 2007.

The dire problems of banks did not help on the way to the bottom.

I am no expert on the US markets, and do not like to make any prognosis of the future but let me take a guess and predict the future.

I would say it is too early to look for a bottom here. It has to travel further down before we can hunt for bargains. Also, the recovery will depend a lot on how the situation is handled. Honestly, no one, at least not me,  has an idea how the present measures will work out.

Meanwhile, the Dow impact was felt on Asian stocks too. The Nifty was trading below 2700 at the time of writing.

The Asian stock markets tumbled Tuesday, with Hong Kong's index down nearly 4 percent. Tokyo's benchmark hovered near a 26-year low as news that Nomura Holdings, Japan's biggest broker, will raise billions more in capital added to worries about the financial sector.

When the going gets bad.... We Nationalize ?

Want to see how bad things are? Just look at these charts.

The first is Citibank :

That is what it has come to. Now. lets look at the next one :

This is Bank of America :

Not a very pretty sight either.

Now, coming to our topic, Friday saw both these companies come under tremendous pressure, anyway at 2 dollar levels what more can we say of the pressure. But the talks of imminent nationalization of American banks, that's right I did say nationalization! led to that mayhem.

Stocks tumbled on Friday, with the Dow industrials ending at a 6-1/2-year low. Uncertainty about how Washington will rescue beleaguered banks persisted even as the White House issued its most direct statement yet on banks, saying it supported a privately held banking system.

The question is can it walk the talk?

Budget Blues

The idea that an election eve budget exercise would cater to the markets led to its downfall.

The markets tumbled across board post the budget, as was to be expected. There was nothing to cater to the desire and dreams of the industries.

Although not much was expected from the policymakers as the vote on account has limited scope, there were strong expectations of some moves to catalyze growth in sectors that have been worst hit by the slowdown.

Ultimately it turned out to be a budget that left a feeling of could have, would have and should have!

But the biggest worry for markets is, now that the government has clearly expressed its stand to not take any strong measures, given that the general elections are round the corner, it could dull the sentiment further.

The problem is that the few months of inactivity in these adverse conditions could hurt the economy more.

From the looks of it, 2009 could see things worsen. But my view is that we just might end the year on a better note.

Japanese Jitters

The news that the Japanese economy contracted at its quickest pace in 35 years, and the lack of focus and direction from the weekend summit of Group of Seven finance ministers did little for the markets mood world wide.

Japan's worse-than-expected fourth quarter GDP numbers were a sobering reminder of the toll the worst economic downturn in decades is having on Asia's export-driven economies. The world's second-biggest economy shrank 3.3 percent from the previous quarter, or at an annual pace of 12.7 percent.

In the mean while the old metal, gold, seems to be ready for a new leap into new heights. I hope you have some investment in that less loved metal. I have written about it before and would reiterate that it is on the way to doing some amazing jumps sooner rather than later.

The prognosis for the equity market is in my view not that good. The last year, 2008 might just be the beginning of the trouble. We might see the troubles continue in 2009 and the equity culture might suffer from a lack of interest from the common investors.

I wonder how the huge mutual fund industry will sell the idea of long term returns to their investors!

Buffet's Swiss Re Gamble

One investor you can trust with your eyes closed is Buffet "The Sage of Omaha", his portfolio has taken a big hit in this economics turmoil. But, he is not one to worry. Infact he has been on the look out for bargains. The latest is Swiss Re

Warren Buffett is injecting £1.8bn into Swiss Re after the Zurich-based reinsurer admitted suffering heavy losses in the financial crisis.

Swiss Re warned today that it expects to post a total net loss of around 1bn Swiss francs (£600m) for 2008. It no longer has enough capital to sustain its "AA" credit rating, and needs to raise another SFr2bn on top of the investment by Buffett's Berkshire Hathaway group.

Buffett, one of the world's richest men, had already bought a 3% stake in Swiss Re last month. He said this morning he was "delighted to have this opportunity to increase our investment in Swiss Re".

The point is will these investments work out as well as in the past?

Given the current situation it just might not.

Bailout, bailout, bailouts ... Who will bail you out?

The following is a list of bailouts the US federal government has carried out in the recent past. The question is how much and how far it can go before it needs a bailout!

You take a guess.

●    Bear Stearns    2008   

JP Morgan Chase and the federal government bailed out Bear Stearns when the financial giant neared collapse. JP Morgan purchased Bear Stearns for $236 million; the Federal Reserve provided a $30 billion credit line to ensure the sale could move forward.    $30 billion
●    Fannie Mae / Freddie Mac    2008   

The near collapse of two of the nation's largest housing finance entities was yet another symptom of the subprime mortgage and housing market crisis. In an effort to prevent further turmoil within the financial market, the U.S. government seized control of Fannie Mae and Freddie Mac and guaranteed up to $100 billion for each company to ensure they would not fall into bankruptcy.     $200 billion
●    American International Group (A.I.G.)    2008   

When AIG was unable to secure a private-sector loan, the federal government intervened by seizing control of the insurance giant. Less than one month after the initial bailout and just days after AIG announced it had already drawn down $61 billion of its loan, the Fed stepped in with an additional $37.8 billion to bolster AIG's securities lending business. In November, with the insurance giant continuing to report heavy losses, the Feds revised the terms of the bailout and purchased $40 billion in AIG preferred shares.     $150 billion
●    Auto Industry    2008   

In late September 2008, Congress approved a more than $630 billion spending bill, which included a measure for $25 billion in loans to the auto industry. These low-interest loans are intended to aid the industry in its push to build more fuel-efficient, environmentally-friendly vehicles. The Detroit 3 -- General Motors, Ford and Chrysler -- will be the primary beneficiaries.    $25 billion
●    Troubled Asset Relief Program    2008   

The Bush administration has proposed a rescue plan to ease the current crisis on Wall Street. If approved by Congress, the Treasury Department will be authorized to purchase up to $700 billion of distressed mortgage-backed securities and other assets and then resell the mortgages to investors.     $700 billion
●    Citigroup    2008   

After Citigroup lost half its value in the stock market last week, the government decided to throw a hefty life ring to the drowning bank. The government will back roughly $306 billion in loans and securities and will inject about $20 billion in capital. This is in addition to the $25 billion the bank received not too long ago. As part of the agreement, Citigroup will freeze dividend payments at one penny per share per quarter for three years, restrict executive compensation and absorb the first $29 billion in losses and 10 percent of subsequent losses. The government could absorb up to $247.5 billion of Citigroup’s losses.     $247.5 billion
●    Chrysler/G.M.    2008   

Chrysler, General Motors and the Treasury Department have agreed upon terms for a bailout package to rescue the drowning automakers. The package consists of $13.4 billion in emergency loans; another $4 billion will be made available if needed. But it comes with strings. The auto giants must reduce their debt by two-thirds, and restore profitability, possibly by lowering wages and benefits. Limits on executive pay and a ban on the use of executive jets have also been imposed. Should the Obama administration determine that the two automakers have not reached the agreed upon goals, they will be required to repay the loans and face bankruptcy.    $17.4 billion

Jesse Nankin, Eric Umansky, Krista Kjellman, Scott Klein

Nationalization of the Free Markets?

Not So Ethical ?

Just came across this interest poll in livemint. In short this poll is a result of the Satyam mess and say, to quote:

Companies in the Reliance-Anil Dhirubhai Ambani Group (R-Adag) were among the laggards in a snap poll conducted by Mint on Thursday to judge how fund managers, stock brokers and market analysts assessed corporate governance standards in the 50 companies that comprise Nifty, the main index of the National Stock Exchange. The 20 respondents were asked to judge companies and corporate groups on three criteria: who sits on their board of directors, the perceived quality of corporate governance and ethics. This was a day after the accounting scandal at Satyam Computer Services Ltd was made public.
Also rated poorly by the respondents were Delhi-based real estate companies DLF Ltd and Unitech Ltd, which were seen to have too many cash dealings which were opaque in nature.

Makes for interesting reading. It upto you how much you agree with it. The small sample size makes it a not so reliable poll but the general idea is that corporate governance is going to be under scrutiny the next few quarters.

What does this hold for us? For one, the result will be more subdued. You will not see any spectacular news, which is likely to put a company under focus.

This, factored with the already unstable and jittery financial markets does not bode well for the short term.