Going with the Flow.

The Nifty continues to move up, adding to its already impressive gains. The Index has moved up from a trading range which was roughly between 4950 and 5100. Today’s breakout from this range should give a target of 5250. It appears that the trading range (referred to above) was a substitute for a correction. A market that does not fall suggests strength.
The zone between 4950 and 5100 will also act as support, probably around 5040 where a number od trading days coincide.
Will there be a correction? Yes of course. With every passing day, investor sentiment is becoming bullish – “This market is not going down” is becoming accepted. It seems that a correction will come when least expected, probably a sudden decline rather than a rounding turn.

Replies to comments:

Manoj asks: “Is the nifty movement from 4990 to 5030 on monday is the ‘big expansion’, you are referring to?”
My Notes: The Nifty moved up from 4935 to 5055 in just a few trading hours. This is the move I am referring to when I talked about an expansion. The expansion continued today as the Nifty touched 5115. It seems likely that we will see contraction ( range bound movement) now.

Manoj asks again “The nifty options move average 30~50 % per day in price,how come 30% return per year will represent excellent performance for an avg trader?So do you suggest that the super high returns per day is not for Indian trader only for wall st super computer hawks?”

My Notes: Goldman Sachs, which represents the “wall st super computer hawks” had its best ever Q2 in June 2009, when it earned 22% on its equity. That is 22% annualized. Most hedge funds will average a return of less than 22%. Also understand that we are talking about average return. A fund may give a return of 104% in a year, then maybe -22% and 8%, so eventually the average is around the levels I pointed out.

Jagdish says ” love your posts but am really unable to fathom your interest in Bharti”.

My Notes: I was asked to comment on Bharti / Rcom etc.. so I picked up Bharti. In its bull market earlier, the stock has rewarded me and probably many other traders, so maybe I have some emotional attachment to it. Emotions NEVER go with trading, so thanks for the friendly warning.
Men asks “how is one to trade in a listless intraday movement of the nifty,”
My Notes: In recent days, most of the money in the Nifty is made in gaps. Thus taking overnight positions has been profitable while intraday moves have been choppy. Of course, this may change again, but for now, go with the flow (up!), buy on dips, carry positions overnight. Since risk increases, reduce your position size. Also look at the sectors that are flying – metals, infra/construction.
Sunny says “bharti share has been split, so past support of 330 etc ur mentioning cant b compared to current price i think.”
My Notes: Charts are adjusted for the split, so 330 now is compared actually to the pre split price equivalent to 330.
In my post on Gold, I wrote “Dhanteras is the thirteenth day in the lunar calendar, two days before the New Moon (Amavasya) in the month of Ashwin. The day comes two days before Diwali which ends the month of Ashwin and starts the month of Kartik. ”
Sunny put in his comments “the minds of so called educated ppl r stuck sky high in movement of planets, not in astronomy but in astrology , pathetic”
My Notes: This is about calendars, how people identified months & days. My post highlighted the use of lunar calendars as opposed to the currently used Gregorian date system based on solar calendar. It is science. There is nothing about astrology in it. I am sorry to say but this comment made me angry because it shows that young people have no idea about science, history, tradition. Sorry about this, but I thought it best to write my thoughts.

AnandSachs has detailed notes on the long term patterns for the Nifty.
He says “Diagonal triangle pattern/ wedge formation is very clear”
My Notes: Yes, the Nifty rally looks like a wedge.

Anand also says that the current up move may be B wave in an A_B_C decline.

My Notes: Maybe. I cannot say since my knowledge of waves is limited. But, even if it is, so what? Also, we must remember that our analysis can go wrong. Suppose, at 7200 Nifty we realize that this was not really an A_B_C, how will it help us then?
Price is the ultimate and only reality in the market. Go with the flow. It is not easy, but is the only way.

Cheers.

Pause after a big move

A strong rally in the Nifty on Monday is likely to be followed by a period of consolidation. This is not unusual, since the Nifty has this tendency to go through a big expansion, then begin a process of contraction for the next few days. Individual stocks will continue to move up / down while this consolidation takes place.

Returns from Investing / Trading
A new hedge fund starting in the USA says it aims to get “almost 15% per year” in returns. This will be better than the average return on hedge funds which is 11%. In India, because of higher interest rates, the aim should be to have higher returns. My own sense is that 30% annualized return (average) for a trader will represent excellent performance. Trader expectations must match the reality of life.

Membership of ATA and the MTA exam
A question on the MTA exam asks if membership of any society is acceptable for this exam.
My Notes: As far as I recall, MTA exams require the candidate to be a member of the MTA. This is a good opportunity to make a case of the Certified Technical Analyst (CeTA) certification that the Association of Technical Analysts is now offering. Please visit http://www.taindia.org/ for more details.

I have requests to review the charts of Bharti Airtel, RCom, McLeod Russell….. . For Bharti, a key question is: Has the stock touched significant support? A look at the weekly (long term) charts will show that current prices of Bharti has at the same level as in November 2008 when the Nifty was around 3000. The current price of 350 has seen many touches over the past three years. It seems reasonable to expect the stock to consolidate at current levels. The second question is: will it move up after such consolidation? There is no answer to this one. We have to follow the price to find out what it will do later