MARKET OUTLOOK
Dear Investor,
The Patience
One of the best aspects of having WII-tennis is convert your living room to tennis court and play the game with any body. It can virtually make even a old grandfather/ grand mother to a successful tennis player who can beat an opponent of teen age, with waist size almost double of the kid & dispatches his volleys with merciless strength often running opponents into the ground.
The key to success in the game is not they are professional players. Rather its, PATIENCE. Patience to learn how to play the game. WII-tennis game relies on touch rather than force. Once the player realise that Tennis is a game of angles and move your adversary to one side of the court and hit your volley to the other and will not matter if the ball is travelling at the speed of sound or fluttering like a butterfly. As long as the angle is steep enough one do not need to overpower the opponent in order to win the point.
The essence of winning play in tennis is to position yourself for the proper shot. That may mean making as many as 20 volleys before you can establish a genuine advantage on the court. Fortunately the speed lost with age has been somewhat offset by gaining some patience. Unlike a teen-age player who likes to whack every shot that comes his way, one needs to stoically volley back and forth until the opponent is out of position.
Trading like tennis is a simple game. Get the positioning right and all other mistakes will fall by the wayside. EXECUTION is the MOST important aspect of the process. If you are on the right side of the trend it doesn't matter if you paid up 10 or even 20 points more for your entry and conversely if you are wrong, no matter how great your entry you will still lose.
Getting into the right position when you trade is mostly a function of patience - of waiting for fundamentals and technicals to align themselves properly to provide you with the highest probability of success.
If one looks back and ask themselves what was wrong in all their earlier wrong trades, the nearest answer usually would b…
1). Wrong on interpretation of the data
2). Some unexpected news event suddenly moved market against the perceived sentiment
3). Rushed on the trade because we needed "to come up with something".
While the first two reasons are simply the normal market risks we assume every time we put on a trade, the third reason is where we have plenty of room for improvement, by learning to be more patient and selective. As the past year progressed I believe we've become a bit better at doing that, but we still have a long way to go.
Hopefully, as 2010 begins and we all get a year older and maybe a step slower, we will learn to appreciate the value of patience making our trading more precise and profitable.
I WISH YOU ALL THE HAPPY, HEALTHY & PROSPEROUS NEW YEAR
* * *
In my last outlook, "Markets might retrace part of the fall in the 2-3 trading sessions, it would be only a pullback rally, and cannot be assumed as end of correction. Markets would generally tend to experience pullback rallies after a steep correction. The target for the pullback rally is placed at 16300 –16700 levels."
Just as expected markets bounced back after touching low at 15330. Since then markets moved between a narrow range of 16200-17350, slightly moving beyond the previous high of 17457.
Technically, there exists a divergence between a/d ratio and market movement, which only indicates that market cannot sustain at these levels. Markets could be range bound for some more time atmost till the first few trading sessions of this month, and should experience the much awaited correction.
Alternatively, with auto, pharma & IT sector in the mid of their strong rally, which has led to Sensex rally so far – considering the momentum left in the above sectors, it is probable that Sensex in the last stages of the rally, unlike what we have analysed earlier.
Either of the alternatives, sensex is the last stages of extended pullback rally or end of the rally that started at 8000 levels. We recommend investors to maintain caution and trade stock specific.
The unevenness between various market moves implies an underlying tension to the tape, as traders jump around in search of something that they think is "working," or at least "moving."
Markets started its rally from 8047 levels on March 6th, and ended at 17530 level i.e., a rise of 9480 points or 118% rise. The support levels for correction are placed at 14500, 13300 & 12000 levels.
Investors should take the opportunity to build up positions for the longterm. The rally that follows the correction will be intense and large, which would recover the most losses that incurred in 2008. Till then retail investors and longterm investors are advised to wait on the sidelines.
Let us take a look at some of the key issues.
CURRENCY- Rupee/Dollar
In my last outlook, "The rupee is expected to weaken further, though one may experience few relief rallies in between."
Rupee made its top at 45.75 on 20th October and started moving downwards. As said above rupee started weakening against the dollar & moved upto Rs. 46.91 against the Dollar. Later rupee pulled back to high of Rs.46.06/dollar and started its journey towards the trend.
We assume that the correction in dollar has ended and started its rally against the global currencies. As shown in my previous outlook, we assume that the multi-year rally towards Rs. 60/dollar has just begun.
Bottomline: The rupee is expected to weaken further.
GOLD
Gold prices have carried quiet a bit higher than what we have anticipated. The excitement about gold's rise is similar to that of oil frenzy early last year, when oil peaked at high of $147 and fell by 78% within next seven months. Even the rational for the gold's rally is the same.
In last few outlooks we shown that Gold is negatively correlated with US Dollar, and thus continues to indicate that gold's recent rise is more a function of dollar decline than a gold rise. Unlike what analysts call of "Gold will rally to $1500, $2000 … or even higher by end of 2010"
Gold made its peak at $1250/ounce and started to come down steeply. During the same period the Dollar bounced with same vigor, which substantiates the above statement.
Bottomline: Our downside target towards $680 remains intact.
USA MARKETS
In my last outlook, "Dow is on the brink of pull back rally. Dow has arrived at another near term juncture that allows for a trend reversal with major implications."
Like Indian markets, Dow moved between narrow range since early November. The last weeks push higher is tiring which is the during year-end period. The new year should finally turn the corner and reverse the bear market rally. A close below 9900 levels should be deep enough to eliminate any remaining bullish potential.
Investors holding positions should exit all long positions and enter into short positions. The safest of all would be going short on markets or buy Inverse Index Funds.
Bottomline: The market's main trend is down. If a bounce develops in 2-3 days it should be good opportunity to get out ahead of larger decline.."
INDIAN MARKETS
However, given that markets tend to experience fall for few more weeks to come, it should be used as an opportunity to build longterm positions in sectors like IT, Banking, Automobile & Pharma. As the rupee is expected to weaken further in the longterm, it would benift the Dollar dependant IT & export sector.
Since the markets either entered into correction phase ending the 7-month rally or in later stages of the rally that started on 6th March, its highly recommended investors to move out of aggressive stocks and readjust the portfolio in defensive like Pharma, FMCG & IT. Fresh investors should desist from entering the markets at current levels.
With fresh outlook coming from Finance Ministry predicting growth rate of 9% henceforth, we expect 2010 to be good year for stocks. Remember, stock markets would be trading atleast two quarters ahead of fundamentals.
OUTLOOK
The market's main trend is down as it remains in its infancy. If a bounce develops in 2-3 days it should be good opportunity to get out ahead of larger decline that should follow.
STRATEGY
Longterm investors are recommended not build fresh positions until the markets go below 14500 level. Short term investors can buy in defensive sectors like Pharma & IT. The ideal portfolio would be 90% in Debt & 10% in Equity(40%- Largecap, 60%- Midcap stocks).
Happy Trading,
United we grow!!!
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