After nearly 45 days of relentless selling by the FIIs, Friday saw the return of FII Buying with purchases of roughly $ 80 mn accompanied by an equivalent amount from the DIIs. The timing could not have been better. May 28th commenced a new F&O settlement for the June series, and with few roll-overs there were virtually neither longs or shorts in the markets. So how about some finely timed positive trades in virtually all the beaten sectors from Oil and Gas, to Banks and Real Estate, and viola most speculators will take a one month long call simply on the premise that they have another month to speculate with just the upfront money. Hence a rollicking 200 point gain on Day 1 of a new settlement for June 2010. Another factor aiding this purchase was the positive Dow Futures, flat European markets and the fact that the US markets will be closed on Monday for Memorial Day. What most investors did not expect was a Fitch downgrade for Spanish Government Debt and a ensuing 122 point fall of the Dow later in the night on Friday. What happens on Monday is anybody's guess. But to me it seems a case of building up the time tested honey trap. People buoyed by Bombay's positive close on Friday will ignore Europe and US and come back in droves pushing up Bombay even further on Monday morning. This trend could last for a few days or a week, but then utlimately things will begin reflecting the going on's in Europe and the US. My indicators and intuition are telling me something, to be sure. My expectation is that we will see a short squeeze in the market that will last days to weeks. After it comes, I will look to take profit on the new long positions and maintain the shorts in an expectation that the market will begin to trend back down again. Markets never move in a straight line. They will inevitably move in such a way that you will feel under pressure no matter what position you have on. This usually leads to the cutting of great trades in bad locations and the entering into terrible trades at just the wrong moment. How do you prevent yourself from making the wrong decision? My philosophy is based on expecting the market to do what I don't expect. Trading is an eternally frustrating exercise until you accept that trading is an eternally frustrating exercise. Then the frustration disappears. Weird. Maybe even Zen? The market, a little like life, will never give you exactly what you want. You will never buy at the exact right time all the time or take profit at the perfect spot. Instead, you will cut the trade and watch in disgust as it turns around and rallies madly. Or you will hold on to the position and watch in despair as it continues to fall. There is a better way to manage risk than trusting your emotions. In fact, anything is better than trusting your emotions as a trader. We all know that we need rules to follow in the market. But no one tells you exactly what those rules should be and so they become a moving target of trial and error, usually error. My own journey has been an enormous roller coaster both emotionally and financially. The lessons that needed to be learned were certainly not the lessons that I thought I needed to learn. Philosophically, I think it's within this process that personal growth occurs. Markets are certainly a fantastic way to learn a huge amount about yourself. Beware though, because not all of it will be rosy. The market abhors an ego. The ego will lead you down a blind alley every time and the market will gladly kick you on your arse every time you get cocky. It is a great tool for learning how to be humble. We have all read and heard the well known market sayings such as "cut your losses and run your profits" or "you can never go broke taking a profit", but if you look at those two sayings side by side they contradict each other. Which one is it? Run your profits or take them when you can? There is no easy answer and you must find your own way to answer that question based on your own personality. There are a million ways to make money in the markets; the only problem is that there are far more ways to lose everything. My objective for the rest of the year, for my readers, is to apply my experience and my approach to this market. There will be a lot of ways to lose everything. But for traders, so much volatility definitely presents opportunity. But you also need to be aware of some of the fundamental factors that are going to affect share prices for the rest of 2010. In fact, a bigger-picture view of the markets informs all of my trading. Without a top-down perspective as a trader-especially in an era of political intervention and sovereign debt risk-you're not just flying blind. You're flying stupid. So what does the landscape look like from above? The current state of the market is shaping up as the next leg of the Global Financial Crisis. There is the very real chance that this leg could end up being far bigger than the first one. Central bankers threw everything (i.e. your wealth) at the problem to stem the tide last time. Now Sovereign balance sheets are under pressure. There's nowhere else to pass the parcel. Of course there IS somewhere else. You! All the central bankers and politicians can do now that they have borrowed themselves into oblivion is to either tax you to death or trash their currency by printing, which is the same thing but by stealth. Every dollar that any government ever borrows must be paid for by someone. No ifs and no buts. The government's only revenue comes from the people. The miracle of government deficits is no miracle at all; it is just borrowing from the future to consume now. In the end, the 1930's and 1940's had to pay for the 1920's. I believe we are basically at the same point in the market that we were in during 1930, a year after the crash. From this point the market traded down in a straight line for three years and ended up 90% down from the all time highs. I am not saying that we will fall by the same amount. I am just saying that the risk going forward is to the downside. It has become a traders market and investors buying for the long term at these prices are going to get burnt in my view. When you have central bankers like Ben Bernanke running the world, I hold little hope of this ending well. I have to mention the speech that Ben made in Japan the other day. I nearly fell off my seat laughing when I read what he'd said. He was trying to make a case for why the Fed shouldn't be audited. This is a very important piece of legislation that has been making its way through both houses due to the hard work of Congressman Ron Paul. It is slowly getting watered down. But the Fed is still banging on in protest at having to show the American people what it has actually been up to for the past few years. Ben had the audacity to say that a central bank that's subject to political influence could be pressed to keep interest rates low to boost the economy and jobs which may lead to higher inflation in the future. Ummm, isn't that exactly what you and your predecessors have been doing for the past 100 years? Except, of course, when your hand was forced to jack interest rates up to obscene levels by the inflation that you created like under Volcker. How could he keep a straight face while he said such a thing? According to Bernanke political interference can "generate undesirable boom-bust cycles that ultimately lead to both a less stable economy and higher inflation." You have to hand it to him. He has absolutely no qualms about lying through his teeth. It is the Fed that has, by its actions, been an instigator of the boom-bust cycles that we have experienced and also the huge inflation that has occurred since the Fed's inception. The Fed, with its power to print money, has the power over the wealth of the people and the wealth of the world that is designated in US dollars. It is a secretive organisation that looks after its banking buddies in times of crisis under the banner that the banks are "too big to fail" and therefore the people should bail them out. It is fighting freedom of information cases in the courts so it doesn't have to show the American people what it has done with their money while at the same time saying that it is committed to "transparency. Keep your eyes peeled for any news about the auditing of the Fed. It is the most important piece of legislation America has seen in years. Unfortunately, I expect the usual 11th hour complete watering down into obscurity by some unseen hand. There is certainly a ground swell of discontent within the people after the bailouts from the crash. It will be interesting to see whether anything actually comes of it or if it is silenced by the establishment. Overnight the US markets fell. How far this market falls from here is anyone's guess, but I think the used by date won't be too far in the future, so if you are tempted to jump back into the market be very disciplined and take profits quickly and try and turn your positions into a free option as soon as you can. There's no need to be a hero at the moment. Volatility is very high so it often feels like the opportunity to make easy money is there, but the increased volatility can rip your arm off as well. Be careful. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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INVESTMENTS IN INDIA
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http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
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NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
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