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Market Analysis - Technical View
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not a time to buy metal stocks at this point for investors,more lower levels expected in front line metal counter both ferrous and non-ferrous....
In reply to:
EWT Alert: Bounce Back on card
Posted by :
sam_pd
fiis are not doing any panic selling,no need to pay premimum to them to buy more, wait for panic selling to buy more. 
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Historically every major bull market run sees a lot of stocks or a particular sector which become multi-multi baggers and become a market fancy. Such a bull run leads to lot of excesses in the system which get totally cleaned of in the following bear phase. The over-optimism , market fancy, lofty valuations etc etc and many other reasons. Even the strongest of the companies may see a shave-off of 80-95 % from peak and may remain at lower levels for quite some time. But the strongest of the lot may come back and achieve similar highs in the next bull run and also give super returns in a span of 2-3 yrs but may remain highly sideways after the wreckage.
Lets have a few examples :
Please note all the prices used are adjusted to bonuses/splits till date and the extent of drop and run is more important.
2000 IT Boom
Infosys corrected from 1726 in 2000 to 269 in 2001 which is a correction of 84 % erosion !.
It recovered to 1700 again by 2006 .
Satyam corrected from 723 to 55 a correction of 92 % . Could only reach to 445 levels by 2006.
Wipro corrected from 1633 to 135 a correction of 88 % . Could only reach to 600 by 2006.
These were the top 3 stocks from the IT sector which could notch back comfortably in the next 5 years.
But the other small ones which caught market fancy and went to highly over-valued levels donot follow the same pattern. Although these companies may still be functioning well now but the bubble levels may never come !
GTL corrected from 2560 to 35 levels which is an erosion of 98 % . The stock could only cross 100 + levels by 2006.
ZEE corrected from 750 to 40 which is an erosion of 95 % . The stock touched 180 by 2006.
HFCL 2550 to 30 came down to almost 1 % of high. The stock is still in 2 digits till now. Pentamedia Group was another which came down to 1 % and r still in 2 digits or lower.
Investors stuck at the top of the rally lost 80-90 % of the money !!! coz of getting in late! and sticking to the mistake. And in some bad ones the total value got eroded.
Smart long term investors bought the biggies in 2001-2003 at the end of bear cycle got almost 5-10 times in next 3-5 years in strong companies with good visibility.
This was 2000-2003 now lets have a look in the excesses of the 2003-2008 bull run. The sector which saw a bubble can be termed to be real estate related stocks.
Lets have a look at the few strong ones.
DLF 1225 to 330 . Erosion of 73% .
Unitech 545 t0 98 . Erosion of 82 %
HDIL 1113 to 150. Erosion of 86 % .
These three are the stocks with high market cap compared to the rest of the gamut like orbit,ansal,parsvanath,omaxe etc etc and many more in the small cap segment. All these stocks have lost almost 80-95 % from the peak levels. I had been critical and made a specific avoid on these stocks in the last few months as one may not know where these stocks could stop although they may be good companies and may continue to function well but history says to avoid.
So what next , Ideally the calcualtions which i have seen over the data in lot of bubble stocks says that the lowest risk is to buy such stocks at 8-15 % from the peak and keep on hold for next 2 years. Although the major consideration is to make a thorough check of fundamentals and prefer to stick to companies with high visibility, earnings projection and may stay well in the business for next 3-5 years.
So in that scenario the low risk bets would be DLF , Unitech and HDIL if available at 85 % or lower and be bought in small lots in the next 3-6 mths closer to 80-90 % from peak if it comes to those levels but the holding period would be a minimum of 2 years. Accordingly one can tae only 25 % of quantity in Unitech at 90-100, HDIL at 150-165 and keep provisions to add further dips in small lots. Although this may be a risky bet now but 2 years down the line could be a different thing. Investors need to do adequate research and will have enough time as these stocks may remain sideways or down in the near term. This is just a stastistical viewpoint....
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Nifty Fut Support @ 3850.....3900;Resis.@ 3950......4000.Break below or above either way will create momentum. Recovery is more likely
watch out...
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watch closely these stocks NTPC, Power Grid, BHEL and L&T. along with BOB GEShipping Tata Power...
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Winwath,
Would it be too personal if i asked you how much trading capital you have and how much it has appreciated since 1996 when u began to trade using TA?...
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by :
winwath
Agreed Rudra. I will always get of a trade that is going against me - max 5 - 8 %. However, it is quite rare.
The charts foretell the unfortunate event in the form of weakness. How often has one come across where the stock has been trending down and all of a sudden - spurts to make new highs. Almost never - history speaks for itself and the charts can confirm it.
Charts are to index/Stocks what horoscope is to human beings. To a large extent charts can foretell.
I can vouch for that since I've been learning charting since 1996 and continuing to do so.
Good Luck Rudra
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Passing out of US bail out package was not able to lift the sentiments in European and Asian markets as well. Nifty may have a flat to negative opening today....
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Agreed Rudra. I will always get of a trade that is going against me - max 5 - 8 %. However, it is quite rare.
The charts foretell the unfortunate event in the form of weakness. How often has one come across where the stock has been trending down and all of a sudden - spurts to make new highs. Almost never - history speaks for itself and the charts can confirm it.
Charts are to index/Stocks what horoscope is to human beings. To a large extent charts can foretell.
I can vouch for that since I've been learning charting since 1996 and continuing to do so.
Good Luck Rudra...
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : rudra_sinha
Dear winwath,
We are talking about strategies where you first protect your capital and then look for profit.
At the current uncertain times, it is more important to protect your capital than trying to make more profit. It wouldn't hurt until you get it right. But you don't get it, it would hurt severely. As for charts, current situation is bigger than charts and TA can't be relied on 100%.
However, it depends on one's risk taking ability. From a low risk perspective, straddle is still the best strategy.
Rudra
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Dow seems to be suffering from Brady and tachy alternatively. Ystday it was brady today it will be tachy heart.
The NYSE TRIN at 0.2 is very overbought even when they sold off so much which is extremely bullish, yes extremely bullish. So shorters should think twice before they keep open short positions for the weekend.
Our own sensex and Nifty are very bearish in all aspects including TRIN. In fact the SENSEX shows an RSI sell too so it might fall more than the Nifty. But since bull power and bear power of Elder Ray favor bulls it might not close at day's lows. It may show some shortcovering at the EOD.
All are probabilities here. My success rate is only 25%. Those who follow me might be risking their money. I love to study markets and this is just a view....
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Thanks Rashmi. Besides my software job, I am also a financial domain trainer in my company and I take sessions for my colleagues on different components of Capital Markets. So, I constantly think of ways to make things easier for people to understand, especially the complex portions like Derivatives.
Alright, now back to the point. I was almost certain that you would give me this answer. The answers you gave are just opposite in perspective, or in other words the trading perspective. Let me explain.
You said that farmer would go for a PUT. Wrong answer. If he is making the contract, he wants to sell wheat and so he has to give the flour company the right to buy i.e. a CALL. :)
If the flour company is making the contract, they want to buy wheat and so they have to give the farmer the right to sell i.e. a PUT. :)
There is a subtle difference between Option contract writing and Option Trading. Option trading is in line with what you said. But option writing is opposite. :)
Lets take an example from the stock market now.
Say, I have 100 shares of L&T and CMP of L&T is 1200. I expect that L&T shares would go down from here and touch 1000. So, I want to still sell my shares at 1200 rupees per share at the end of October. If I want to sell, somebody has to buy. So, I want to give that person the right to buy L&T shares from me at 1200 per share at the end of October. So, I would write a CALL. Now, the person who is buying the CALL is bullish on L&T. So, he is buying the CALL. So, the writer/seller of a CALL is having bearish view and the buyer of the CALL is having bullish view.
Now, if I had a bullish view on L&T, I would like to still buy L&T at 1200. So, if I want to buy, somebody has to sell (Who thinks L&T would go down from here). So, I would give that person the right to sell L&T to me at 1200. So, I would write a PUT. So, the writer/seller of a PUT is having bullish view and the buyer of the PUT is having bearish view.
Are you clear now on Options writing and trading concept?
What we do mostly is option trading. But I wanted to clear the whole concept first and then take it further. So that you know what you are doing and what are the risks. :)
Let me know if you have any further question on the concept. I shall answer your questions on in-money-call etc. when you are absolutely clear on the concepts.
Thanks,
Rudra...
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by :
rashmi26
dear rudra,
i must say u hav a very interesting and simple way to put things.now coming to the story part from the farmer\\`s point of view-i think that is aput.no matter where the prices of wheat are in the next 3 months even if they increase if he has made contract with with the company he wil hav to sel it at the decided rate.and the atta company- even if the wheat prices go down in the next 3 months they will hav to buy at the current market price as decided in the contract eventhough they may be incurring a loss.this is a call from the company\\`s point of view.
am i right?one more thing a few months back u had given a call on jai balaji.does it still hold good in the current market scenario?
thanks rashmi
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Oh right right. This part slipped out of my mind.
Thanks raj for reminding....
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : raj_tibs
CE is a european call option - it can be exercised only after the trading session closes on the DAY THE CONTRACT EXPIRES. All index options are european options.
CA is an american call option - it can be exercised on close of trading on ANY DAY Till the day of expiry... All options for individual stocks are American options.
IT IS VERY RISKY TO WRITE american options.
IT IS QUITE SAFE TO WRITE european options.
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can any one tell me in detail how to understand this,frequently used by TV channels.
1-if nifty adds shares in open interest
what does it mean,short position or long build up
if nifty sheds shares on open interest,what does it show
2- how to know that call writing or put writing is being done on what strike price
3-how to know that short position is being build up in market...
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Mohan,
Another excellent trade in my opinion would be - sell a Jun2011 5700 CE at 500, and buy a Dec 2008 Nifty future with the intention of rolling it over till Jun 2011.
Margin requirement - 65000-70000
Less (premium received for 5700 call) - 25000
Reserve (assuming a Nifty low of 2800) - 60000
------------------------------------------------
Net requirement ------------ 100000
Maximum profit -------------- 170 * 50 = 85000.
Note that the reserve needs to be an FD and can earn interest... So effectivly you may end up doubling your money in 2 years by executing this trade once, and then forgetting abou it -- except rolling the future over every one quarter.
...
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : mohanji
Dear Raj,
Q
I guess you mean net income of 500 as of now (if sold 4000 ce and bought 5700)... So maximum loss will be 1200, and maximum profit 500. I do not think it is a very good trade. The opposite probably is - buy a 4000 CE and sell a 5700 CE at a cost of 500... Max loss 500, max profit 1200
UQ
YOu are right.Buy 4000 CE and Sell 5700 CE .Sorry for the typo.Regards
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dear rudra,
i must say u hav a very interesting and simple way to put things.now coming to the story part from the farmer\\`s point of view-i think that is aput.no matter where the prices of wheat are in the next 3 months even if they increase if he has made contract with with the company he wil hav to sel it at the decided rate.and the atta company- even if the wheat prices go down in the next 3 months they will hav to buy at the current market price as decided in the contract eventhough they may be incurring a loss.this is a call from the company\\`s point of view.
am i right?one more thing a few months back u had given a call on jai balaji.does it still hold good in the current market scenario?
thanks rashmi...
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : rudra_sinha
Rashmi,
I have absolutely no idea about the difference between CE and CA. Call Reliance Money and get the clarification. In ICICIDirect, I get Call and PUT.
To make you understand the Option, I would write a small story here. And would ask you questions on that story to make it interactive. It would surely help you to understand the Options.
There are two pieces of the story.
First part:
A wheat farmer is expecting good wheat output in 3 months time from now. However, due to good weather conditions, he expects that all the farmers would have a good production of wheat this year and hence due to greater supply of wheat, the wheat prices would fall. Current market price is, say, 6000 rupees per ton and the farmer would like to sell his wheat at the current market price than reduced price 3 months later. So, definitely he would look to rope in a buyer who would agree to buy wheat from him 3 months down the line, but at the current market price.
Second part:
Now Annapurna atta company, who makes flour from wheat and sells in the market as packed atta or maida, expects the wheat price to go up 3 months later due to huge demand of flour during festive season. So they would like to rope in a seller/farmer who would agree to sell wheat to them 3 months down the line, but at the current market price.
Now, combining these two parts of the story, if the farmer and the Annapurna atta company came to a business relationship, what type of contract do you think is possible between them?
I would give you a clue. Think from both farmer and the atta company's perspective separately and you should get more than 1 types of contract.
Think through and answer the questions.
I shall explain in money put or call after I am through with the options concept itself.
Thanks,
Rudra
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If I am reading the situation right, you won't see many range bound days like Wednesday this month. There would be significant move either side that would take the straddle to the profitable position. Straddle should not be held till expiry.
I shall post in this forum when I see the best time to square off the straddle.
Thanks,
Rudra
P.S. I am off to MP for a vacation trip for the entire next week and thus would not be posting any message starting 6th October till 12th October....
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : mohanji
Dear Rudra,
Do you feel that one can get the chance to get some profit from this straddle during Oct contract?Is it worth waiting so long?Regards
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CE is a european call option - it can be exercised only after the trading session closes on the DAY THE CONTRACT EXPIRES. All index options are european options.
CA is an american call option - it can be exercised on close of trading on ANY DAY Till the day of expiry... All options for individual stocks are American options.
IT IS VERY RISKY TO WRITE american options.
IT IS QUITE SAFE TO WRITE european options....
In reply to:
HELP HELP HELP !!!!!!!!!!!!!!!!!!!!!!!!!!
Posted by : rudra_sinha
Rashmi,
I have absolutely no idea about the difference between CE and CA. Call Reliance Money and get the clarification. In ICICIDirect, I get Call and PUT.
To make you understand the Option, I would write a small story here. And would ask you questions on that story to make it interactive. It would surely help you to understand the Options.
There are two pieces of the story.
First part:
A wheat farmer is expecting good wheat output in 3 months time from now. However, due to good weather conditions, he expects that all the farmers would have a good production of wheat this year and hence due to greater supply of wheat, the wheat prices would fall. Current market price is, say, 6000 rupees per ton and the farmer would like to sell his wheat at the current market price than reduced price 3 months later. So, definitely he would look to rope in a buyer who would agree to buy wheat from him 3 months down the line, but at the current market price.
Second part:
Now Annapurna atta company, who makes flour from wheat and sells in the market as packed atta or maida, expects the wheat price to go up 3 months later due to huge demand of flour during festive season. So they would like to rope in a seller/farmer who would agree to sell wheat to them 3 months down the line, but at the current market price.
Now, combining these two parts of the story, if the farmer and the Annapurna atta company came to a business relationship, what type of contract do you think is possible between them?
I would give you a clue. Think from both farmer and the atta company's perspective separately and you should get more than 1 types of contract.
Think through and answer the questions.
I shall explain in money put or call after I am through with the options concept itself.
Thanks,
Rudra
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