Understand the Context.

The stock market does not give the same signals to all participants. A stock may be a buy for a long term investor, it may be an exit for an intermediate trend trader and could be a buy / sell for the swing trader. The context is important to understand when trying to use any advise that comes to you.

Reader men seems to track my utterances very carefully. He writes “On CNBC you said an investor should buy R power as you are expecting a bubble sometime in 2011is there any thing on the charts that such a thing is possible? U also said that if the market were to correct then this stock would also fall, then in such a case what should the stop loss be or is this a purely contrarian call.”

My Notes: The Power generation sector is waking up after a long process of consolidation. RPower is a speculative stock which could well turn into a bubble if the sector were to begin a bull market.  Now, this and most other stocks will fall if the market does so. My statement to this affect was a warning to understand that RPower is not being suggested as ‘THE’ stock.

I respond to specific questions on stocks therefore it is neccessary to understand the context. For RPower as well as for RCom (mentioned below) the context were questions from viewers who generally said that they wished to invest in these stocks. If I perceive a bearish trend I would have said – please do not invest. RCom (like most other telecom stocks) is probably building a base, and, is justified as an investment.
Men writes:
“Also you have given a contrarian call on rcomm for an investor is this purely on fundamentals, and if so since when have you started investing purely on fundamentals, because if I remember correctly in one of your posts you have said you generally ignore fundamentals and go purely by the charts, at least in rcomm case then it MAY BE AN AVOID if one were to consider the momemtum.

On JSPL with a pe of >50 you have given an out performer, kindly suggest some levels to enter and exit.”
My Notes: JSPL is a chart call. This is a stock that has been making new highs. In my dictionary, new highs are bullish. So, the PE may be unacceptable but that may mean that earnings will rise to match prices.  You really need to track the charts to determine your entry and exit levels. It also depends on your time frame – for an investor either a deep correction or a long consolidation are ideal points for entry.
Cheers.

Four Little Bars

Reader Danish suggested a few posts back that we should also discuss trades that did not go our way. So here is a trade that I currently have:

The Nifty was in a narrow trading range for the last four trading days. Actually, it was for the entire week since Friday was a holiday. This is how my analysis went:

Primary trend of the Market: UP
Intermediate trend: UP
Significant Pivot: Yes, at 5200

The Narrow range comes in a strong uptrend. I therefore assume that this range is a pause in the ongoing up move. A move above last week’s highs may result in a decent upthrust. Taking out the pivot should add more steam to a breakout.Therefore, we went long in the Nifty on Thursday afternoon, choosing deep in the money calls rather than futures. (Because we had a three day weekend, so you never know! Calls have much less risk).
So, this is an ongoing trade, which can do well or go wrong.
Now this is a discretionary trade. We also run systems (for our trading as well as for clients) which are fully mechanical. These systems are either flat or long, depending on how they are structured, but none of them is short. (Most are flat, I think).
Meanwhile, I am going to see ‘three idiots’ – the movie, although working in the markets, I wonder if I will get new insights into human nature. (We have seen it all).

Cheers!