Dow's Historic fall

1.US bailout plan fails

2.DOW falls 777 points

3.Wachovia Bank taken over by citigroup

4.European bank nationalized

5. Crude bomb blasts in Maharashtra and Gujrat (low intensity)

 

All bad news hitting the market together so there is no Doubt that we are to open gap down tomorrow but how bad it will be, is to look for.It seems that the 3600 will be very close. If the market open near to the Lower circuit i guess it will be the better Idea to Buy than to sell for the intra Day, for medium term outlook still remains weak.

Technical indicators were already down so all technical analyst were of the view that market will come near 3600, which we are going to see in this week only i guess or may be today only if panic is not controlled.

People keep blaming others for their mistakes this is very common tendency, i believe that to take the decision is always in your hand. Listen to everyone but do what you belive and don't regret on what you have done. Learn from your mistakes and move ahead.

Dr.Edler Alexander in his book 'Come into my trading room' says:- When you make a mistake for the first time, it shows that you are alive, searching, experimenting.Repeating a mistake is a neurotic symptom.

 

A Trading Plan For Myself!!!

---Extract on trading Plan from Elder's book by Mr. Manoj---

This plan is based on much of what Dr. Elder advocates and I am deeply influenced by his methods. The main idea behind this plan is to trade short term swings. This plan lays emphasis on trading with the trend and has shades of Triple Screen method. We generally start by paying close attention to the external stimuli and market internals to check the undertones of the overall market. Then we use a wide variety of scans, which one is comfortable with to zero in on the scrips worth trading. This plan lays equal stress on strict money management. Though this plan may sound too boring or appear too long but I feel a trading Plan is essential for the survival of a good trader. All care has been taken while devising this plan to embrace the element of KISS! So here it goes;
1. The Market Internals.
Here we tend to look into a few indicators that show the overall breath and underlying strength and weakness of the general market. There are plenty of such indicators that one can use, I am particularly tryin2limit my list to just a few.
A. Vix: Vix is a volatility index. This is based on the activity of option traders. Vix is a contrarian indicator. Any readings above 35 suggest extreme pessimism and used as a buying opportunity. One should book profits when Vix is nearing 18 on its way down.
B. New High New Low Index: This is created with New Highs-New Lows. This is a very important indicator. It signals important turns in the market when it diverges from the Price. One can also use A/D ratio for the same purpose.
C. Open Interest: It pays to monitor Open Interest. Monitor the changes in Open Interest. Keep a tab on the puts and calls. The max Open Interest in particular calls and puts is suggestive of the resistance and support the scrip is likely to encounter. Along with Open Interest keep a watch on the PCR.
2. Scans For Choosing The Stocks To Trade.
There is a wide variety of scans one can choose from; again this is a matter of personal choice. I like to use;
Price Volume Breakout
MACD Divergence
Triple MA Crossovers
The Visual Scan (patterns etc); I consider this as the most important!
Whenever you run your scans the list needs to be additionally filtered by running the Relative Strength Comparative (RSC) and ADX filters. The idea behind such filters is that we want to zero on the scrips which are outperforming the Index and are showing strength (RSC). The ADX filters those scrips where the trend is strong and the move will be fast and strong. Again I repeat why we use such filters is that we want to get into the scrips which are ready to move immediately (ADX+25) and are likely to outperform (RSC).
3. Chart Analysis.
Armed with the list of scrips we now move on to Chart Analysis. First on our list is;
Monthly Chart: I use Monthly Charts to see the broader trend and some major support and resistance areas.
Weekly Chart: This is very important from the point of view of a Swing Trader. Weeklies are the first things we look into. In here we identify important S/R levels. We look at patterns if unfolding and general Pivot Points.
Daily Chart: This is used for action. In the daily chart we look for Swing Highs and Swing Lows. We also pay close attentions to the patterns. Judicious use of MA’s and Trend Lines intimate us of future S/R levels.
Hourly Chart: This is primarily used for the purpose of fine tuning our entries and exits. For a Swing Trader this particular chart is of no major importance but for the Day Trader this is the most important chart.
Since we are dealing here with the charts, it would be prudent to bring up the topic of indicators to be used. I personally feel the choice of Indicators is a personal one. Use what one is comfortable with. Personally I like to overlay my price pane with 20/50/200 EMA,s. A price Envelope, to identify targets. The Lower panes are occupied with RSI/MACD and Stochastics.
4. ABC Rating.
Once our chart reading is over we yet again rate the charts in the order of their priority. We rate them on scale of ABC. A stands for high probable trade that we our likely to take the very next day. B is for a trade where we think that the trade needs to be worked upon for sometime before initiating an entry into it. C is for the trades where we can see some major patterns unfolding. The trade looks promising but needs time to develop; hence patience is required to let it ripen before we taste the fruit.
5. Taking The Trade.
This is where all the above leads to. Pulling the Trigger. Books have been written about this but I would rather keep it short and sweet. TRADE IN THE DIRECTION OF THE TREND. We only initiate our trade when our Daily Chart is in sync with our Weekly Chart. Anything contrary is sacrilege. After doing all the above exercises we do not want to blow it up by going wrong in pulling the trigger. Even the best of trade setups go awry if we jump too soon. It is said there are three very important rules that can give you the best entry in the world. These rules are Patience, Patience and more Patience! While speaking about taking the trade one of the most important things before initiating the trade is defining of the following; the Entry Price, the Stop Loss, and the Exit price. If you are unsure of any one of these three you are not allowed to enter. The next step after entry is to monitor the trade and take profits when target is achieved. Here if one feels that the target is likely to be overshot then one can use trailing stop. Another golden rule GREED IS GOOD but never ever let your winning trade get into a loss. Love your losses so much that you want to take them as soon as they occur!
6. Money Management.
This pertains to most what Dr. Elder teaches. Never bet more than 2% on a single trade. Never loose more than 6% of your capital in a month. Very simple yet hardest to follow. This is the HOLY GRAIL. If you have mastered this then you are THE MASTER!
7. Organized Trader.
This lead to the finale where all the above ends! Yes the very important part The Documentation. Every trade needs to be carefully documented. Every chart needs to be marked and saved. Every lesson learnt every moment of Glory, every moment of Despair needs to be saved and well documented. This forms the foundation on which you will build your successful trading career.
This is the gist of a good trading plan. This is not a final plan coz there can never be a final plan. We change with times things change there will be changes or rather should be changes in this plan as we move forward in our journey. You need to make a plan that suits you, a trading plan is like a well-fitted suit, every individual has different styles but the basic structure stays the same!!! I am tryin2implemnt my plan, if you have any further additions or refinements to the above then do let me know.

Special Thanks to Mr. Manoj for this write up on the Plan.

Bankruptcy Concept... Easy One to Understand...

Once there was a little island country. The land of this country was the tiny island itself. The total money in circulation was 2 dollars as there were only two pieces of 1 dollar coins circulating around.

1) There were 3 citizens living on this island country. A owned the land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C own 1 dollar each while B owned a piece of land that is worth 1 dollar.

* The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the country, and land is non producible asset, its value must definitely go up. So, he borrowed 1 dollar from A, and together with his own 1 dollar, he bought the land from B for 2 dollars.

*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.

4) A saw that the land he once owned has risen in value. He regretted having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed 2 dollars from B and acquired the land back from C for 3 dollars. The payment is by 2 dollars cash (which he borrowed) and cancellation of the 1 dollar loan to C. As a result, A now owned a piece of land that is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1 dollar.

* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own the land. So he bought the land from A for 4 dollars. The payment is by borrowing 2 dollars from C, and cancellation of his 2 dollars loan to A.

* As a result, A has got his debt cleared and he got the 2 coins. His net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.

* The net asset of the country = 6 dollars; even though, the country has only one piece of land and 2 Dollars in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blew, and an evil thought came to C's mind. "Hey, what if the land price stop going up, how could B repay my loan. There is only 2 dollars in circulation, and, I think after all the land that B owns is worth at most only 1 dollar, and no more."

(8) A also thought the same way.

(9) Nobody wanted to buy land anymore.

* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4 dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.

(10) So, who has stolen the 3 dollars from the country ? Of course, before the bubble burst B thought his land was worth 4 dollars. Actually, right before the collapse, the net asset of the country was 6 dollars on paper. B's net asset is still 2 dollars, his heart is palpitating.

(11) B had no choice but to declare bankruptcy. C as to relinquish his 2 dollars bad debt to B, but in return he acquired the land which is worth 1 dollar now.

* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. ( he lost everything )
* C got no choice but end up with a land worth only 1 dollar

* The net asset of the country = 3 dollars. 

************ **End of the story; BUT ************ ********* ******

There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.

(i got this story from one of the fwd mails from the friend & is not constructed/written by me)

But few points worth noting -

(1) When a bubble is building up, the debt of individuals to one another in a country is also building up.
(2) This story of the island is a closed system whereby there is no other country and hence no foreign debt. The worth of the asset can only be calculated using the island's own currency. Hence, there is no net loss.
(3) An over-damped system is assumed when the bubble burst, meaning the land's value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The fellows having the land or extending loan to others are the losers. The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another piece of land but refrains from taking part in the game, he will neither win nor lose. But he will see the value of his money or land go up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble, it is worthwhile to borrow money (like A ) and take part in the game. But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology.

"I cannot afford to waste my time making money."

US BailOut effect

The US  Financial Bailout was just like and injection given to the dying patient; the patient survives but if you are expecting the patient to get up and start running immediately, you are then just fooling your self. How do the fundamentals change within the Day? we have seen yesterday the market was confused it was moving up and down and up and down didn't knew where to go. As the effect of injection goes out after some time, i see the effect of Bailout injection also going out completely today.

I believe we should keep buying for long term only and in small small quantity. We should research and then buy the stocks which have more potential to grow in future rather than just buying the current Blue Chip companies.I feel investing in power companies which are going to get benefit from nuclear energy would be the good deals to buy now. I suggest NTPC,Rolta,GVK Power,BHEL among the some which would get benefit out of this deal.

I guess because of the good policies and actions of RBI regulation the PSU banks are having the least exposure to the bad mortgage debts and are least affected by the big falls seen in the market currently.So in coming day i think the PSU banking stocks will ride, but there is exposure in Private sector banks and bank like ICICI and other banks which have exposure will definitely see the effect of the US fall. On the Banking index technically i see the inverse head and shoulder in picture but unless the neck line is crossed it won't move up and it is good for pattern to complete because some times incomplete pattern are dangerous.

Get Ready for the Big Fall today, its time for all bears to celebrate.

Financial turmoil in US in short……

IT all began with the sub-prime crisis. 

If you lost you money in the market crash of January 2008, here's the route to your loss, in chronological order.

2001-2005: House prices in the US begin to rise rapidly. Banks lend aggressively and create a sub prime industry.

Sub-prime lending refers to lending (at slightly higher interest rates) to people who may not be eligible for a loan under normal circumstances. Maybe they don’t have a regular job or income, or have defaulted in the past. 

Banks traditionally did not lend to such people due to high risk of default. But since these loans were mortgaged against property and property prices were rising continuously, banks started doing so. If customers defaulted, they good sell the mortgaged property.

2005: The booming housing market halted abruptly in many parts of the US.

2006: Prices are flat, home sales fall.

February 2007: Sub-prime industry collapses in the US; more than 25 sub-prime lenders declare bankruptcy, announce significant losses, or put themselves up for sale.

While they were lending, banks did not factor in the possibility of a fall in property prices. When the Federal Bank (the US equivalent of RBI) started increasing interest rates, the sub-prime borrowers started defaulting and banks started selling off the mortgaged properties. As more and more properties came into the market for selling, the property prices fell.

August 2007: Many leading mortgage lenders in the US filed for bankruptcy

March 2008: Bear Sterns falls.

September 2008: Lehman Brothers file for bankruptcy. Merrill Lynch sells off to Bank of America. 

Between 2001 and 2006, the US financial markets had developed a new product – a bond securitised against the mortgages.

In simple terms it means that the mortgage banks borrowed money against the mortgages on the condition that they would repay to lenders as soon as they recovered their mortgages. The lenders in this case were financial institutions (like Bear Sterns, Lehman and Merril Lynch) who in turn sold retail bonds to individuals. 

Sadly, the repayment never happened. And institutions like Bear Sterns, Lehman, Merrill Lynch and AIG were the casualties. Since the mortgage was not honoured, the banks could not repay these financial institutions who in turn could not repay retail investors.

Get Ready to Short ....

The market is just bouncing back after the continuous fall so be ready for the another fall may be on Monday end of day or from Tuesday till the expire of the month. May be we can see 3850-3900 on the expiry date. Today Dow made a good 410 point rally also on SGXnifty we closed quite +ve. But there are rumors that the Short selling can be banned so wait and watch.

Intra day can buy any stock all good.

 

Nuclear waiver sentiments went off in a Day

There is support at 4200 level which if broken the market will be cheered by Bears and then we will see a rally down .... Rupee is getting weaker and weaker against $ ... for today i think that market will bounce back today against last todays fall but overall the market seems to be bearish. I feel once we complete the rally downwards then there we would bottom out and then only we will take the fresh ride.

Nifty Jumping Back

Yesterday Nifty was outstanding .... we have cleared the 4500 mark so it seems that we are now going towards the 4620 level which should be the next target. The oil is drifting down so is seems that the 4600-4700 level should be easily achievable . Happy trading ...