Depression & Revulsion

The Wall Street Journal ( read it here ) quotes James Montier, strategist at Societe Generale, that the last stage of a “de-bubbling” process is revulsion. “The speed of the market’s unravelling means that we are now rapidly approaching levels of valuation normally associated with revulsion,” he writes, noting, however, that “cheap stocks can always get cheaper, and more expensive stocks can always get more expensive.”

Replies to Comments

Bikramjeet Singh refers to the Nifty weekly chart given in our newsletter for clients, and says: “A similar pattern is there in DOW daily chart too, see (http://www.cnbc.com/id/29474078/). The combination seems deadly……”
My Notes: Yes, I saw the Dow chart. The pattern is the same. The Dow has broken down. We assume that the Nifty will do so. The resistance levels at 2700 and 2800 offer short selling opportunities.

Sunil Malhotra writes: “I could not understand why the banks stocks have fallen so much in last week. Can anybody explain this and if this is buying opportunity in Banks or they are likely to fall further.”
My Notes: The Banking Sector has been underperforming. Banks have broken down. I had warned of a rising flag (bearish!) many weeks ago. Much lower levels are possible. For the question: why did they fall ? I really do not know. Talking heads on TV spend all of their time answering such questions. Please listen to them. It will not add value to your trading, but maybe you will know the answer.
Sunil again says: “But a weblink http://www.utvi.com/stock-market/stock-market-news/19592/icici-bank–ranbaxy-in-oversold-zone.html is saying the these four stocks has RSI below 30 = 1)ICICI Bank 28.9, 2)Ranbaxy 28.4, 3)SBI 30.0 4)Tata Power 30.0. So, i want to know if RSI goes below 30, the stocks go in oversold zone and can be brought for short term gain.”
My Notes: No, you cannot buy. An RSI below 30 does NOT assure profits. If it was so easy, then why not just buy stocks with RSI below 30 and laugh your way to the bank. In fact, in strongly trending markets, the RSI may fall below 30 and remain there for many days. When it recovers, the prices may simply consolidate before starting another round of declines. Also remember, UTV is a media company, not traders. One more point, I assume that you have a charting software where you can actually apply the RSI and see its behavior.

Chandu writes: “Today on CNBC u shared a thought about nobel winner on FII’S and his blog.can you please share once again his views.”
My Notes: Krugman, Economics Noble prize winner in 2008 and an adviser to President Obama referred to capital account controls. He did not write about FII’s in India. My point was: if the USA considers some kind of controls, then FII flow to India will be adversely affected. You can read the capital control ideas here – Paul Krugman’s Blog .