Tuesday, March 31, 2009

Analysis 31st March - S&P 500 and Nifty

Dear Readers,
Today is 31st March of 2009 and as usual we traders expect markets to be up in expectation of NAV prop up efforts by funds. At the time of writing this post Indian markets are closed and US markets are open. Following is my analysis based on various charts:

S&P 500 Future:
In my last post on March 26, I expected S&P 500 Future to face resistance around 823 and it almost touched 830 and then retraced back. In my view 838 is the key and so far it has not even touched that. For today I expect it to make a "doji" (open almost equal to close) OR Inside Day (means close below 807). Following is the summary I arrived at:
  • Main (Primary) Trend - Bearish. There is no change in the Main Trend.
  • Short Term Trend - Bullish.
  • Resistance - 799, 829, 838, 855, 876.
  • Support - 774, 765, 749.
Nifty Future:
For so many times I posted here one number - 3140 and that was exactly the high Nifty Future made so far in this rally! Also, I pegged support at 2972 and it did not breach that today and closed above the other number I told - 3008. This makes me believe that the uptrend of short term is stronger than most thought. Now, the latest observation is following:
  • Main (Primary) Trend - Bearish.
  • Short Term Trend - Bullish.
  • Resistance - 3055, 3140 - 80, 3215, 3264.
  • Support - 2972, 2908, 2830 - 70, 2730 - 50.
The important thing is if it closes below 2730, then this short term rally will be over. On the other side, bulls need to conquer and remain above 3268 to break Main Primary Trend.

Saturday, March 28, 2009

American Dream, Ponzi Schemes and Survival

Dear Readers,
After a magnificent rally in global markets this week, let us sit down and look at bigger things for a while. Stock Markets are a mirror of economy in general and economy of world has changed a lot in last century - from hard tangible currency, epidemics, Wars to central banks, fiat money, irresponsible resource (mis)use, latest products of financial engineering etc.

What is economy? Well, I am NOT going to tell you the text book definition here, actually, in my humble opinion, economy is the system of force by which people find ways to co-operate with others so that they can live better and improve the chances of their offspring's survival in future. If one understands this definition then he knows why it is so important for an economy to be sustainable in the long run (centuries / millenniums ahead). But, while mother nature is there to teach us lesson, father greed is always one step ahead motivating(?) us to find ways that could fetch us more and more.

The Global Economy:
For many decades Global Economy is running like this:
Manufacturers in some part of the world (say China) make goods and sell them to Consumers (say Americans). They, the Chinese, get dollars in return and lend those dollars to Americans (buying bonds). Then the Americans buy more Chinese products from those borrowed dollars... and the cycle goes on and on...

Then, add ecological dimension to it and it becomes like this (Quoted from an Article by Thomas L. Friedman of The International Herald Tribune):

"We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese"

Now, just looking at this system makes me feel sick as a human being. Is this sustainable? Definitely not and in fact it has already started breaking down as The Great World Depression is unfolding.

Now, let us play a quick game - look at the images below and guess where they were taken.

What did you say? some developing country? India? China? South America? or Africa? You are wrong. These pictures are from the Richest State of the Richest Country in the World - California of US of A. The American Dream! Unbelievable? well this is the actual news story taken exactly from The International Herald Tribune:

"FRESNO, Calif.: As the operations manager of a outreach center for the homeless here, Paul Stack is used to seeing people down on their luck. What he had never seen before was people living in tents and lean-tos on the railroad lot across from the center.

"They just popped up about 18 months ago," Mr. Stack said. "One day it was empty. The next day, there were people living there."
"U.S. cities deal with a surge in shanty towns
Like a dozen or so other cities across the nation, Fresno is dealing with an unhappy déjà vu: the arrival of modern-day Hoovervilles, illegal encampments of homeless people that are reminiscent, on a far smaller scale, of Depression-era shantytowns. At his news conference on Tuesday night, President Obama was asked directly about the tent cities and responded by saying that it was "not acceptable for children and families to be without a roof over their heads in a country as wealthy as ours."
(Please note that these pictures are taken from www.iht.com and are a property of The New York Times Company
You read those words of the Messiah - Obama. He says its unacceptable. Yes it is. All Americans should be ashamed on seeing those pictures. What went wrong? I don't know the details of those living in those tents but my guess is the habit of living paycheck to paycheck and zero saving might have something to do with them. In simple words - A consumer dependent economy can not make you prosperous. Period.

Now, dear readers, some of you must be angry with me. "What is the problem with earning and spending?" you may ask. Well, let me quote this June 15, 2005 news story from theonion.com:

"FENGHUA, China - Chen Hsien, an employee of Fenghua Ningbo Plastic Works Ltd., a plastics factory that manufactures lightweight household items for Western markets, expressed his disbelief Monday over the "sheer amount of [garbage] Americans will buy. Often, when we're assigned a new order for, say, 'salad shooters,' I will say to myself, 'There's no way that anyone will ever buy these.' ... One month later, we will receive an order for the same product, but three times the quantity. How can anyone have a need for such useless [garbage]? I hear that Americans can buy anything they want, and I believe it, judging from the things I've made for them," Chen said. "And I also hear that, when they no longer want an item, they simply throw it away. So wasteful and contemptible."

Even the person who happens to get direct benefit of this reckless American consumers' habit can't believe the irresponsible behaviour of The Consumers! This is what happens when you have easy money in the form of credit and various asset price bubbles (like housing, commodities and stocks).

The Ponzi Schemes:
You must be aware of the recent Madoff Scam, a Ponzi Scheme which runs on the theory that part of money taken from future investors is given to past ones as returns instead of earnings. and part of it pocketed. What happens is that the starter of this scheme continues it till the time there are no more new customers / investors available. In essence the scheme fails because its not economically viable as "earnings" are less than the payments because it requires ever increasing flow of money from investors in order to keep the scheme running. History is evident that all such schemes result in ultimately hitting the wall and going bust.

Now, look at the current global economic model, the crisis and then the way Feds and Govts are handling it. First of all the model itself is not sustainable. It had to to hit a wall and it hit it when house prices started falling in prices in the US of A. Now, the Feds and Govt there have only one solution in their minds - let us reflate asset prices with more of fiat money so that it gets going again. They are saving the wrongdoers (the lenders and the borrowers both) by robbing the ones who saved their hard earned money for a rainy day. What they are basically doing is trying to salvage a breaking down Ponzi Scheme. Will they succeed? yes, but only in postponing it (and the more they are able to delay it, the more the crisis will grow in size). "Bailout" is the word that rules mainstream media these days. Bailouts of failing entities is the magic mantra they think. But, bailouts are against nature and natural forces. They do not calm down Mr. Market but instead make him angry. Anyway, what if we don't have any option called "bailout"? Read the next section...

If you thought the above mentioned Ponzi Scheme is the ultimate one, then you are wrong. Well known physicist and climate expert Joe Romm writes blog climateprogress.org and this is an interesting piece from his post "Is the global economy a Ponzi scheme?"

"In our case, investors (i.e. current generations) are paying themselves (i.e. you and me) by taking the nonrenewable resources and livable climate from future generations. To perpetuate the high returns the rich countries in particular have been achieving in recent decades, we have been taking an ever greater fraction of nonrenewable energy resources (especially hydrocarbons) and natural capital (fresh water, arable land, forests, fisheries), and, the most important nonrenewable natural capital of all — a livable climate.

The system is destined to collapse because the earnings, if any, are less than the payments."

He adds, "Knowingly entering a Ponzi scheme, even at the last round of the scheme, can be rational in the economic sense if a government will likely bail out those participating in the Ponzi scheme."

But, here is one catch - Mother nature doesn't do BAILOUTS. So, once this Ponzi Scheme hits the wall, there will be no option but to surrender.

Thursday, March 26, 2009

S&P 500 and Nifty Future Analysis as on 26th March, 2009

Dear Readers,
Following is my view of US S&P 500 Future and Indian Nifty Future based on various timeframe charts.

S&P 500 Future:
At the time of writing this post it is trading at 816 and there are still 3 hours left for US markets open. What I see is a stiff resistance here (823). After showing an upmove of nearly 22%, I think there are good chances that this resistance works. The market is overbought in the short to medium term and a correction looks a good possibility. However, the trend for short term is still bullish. Following are the points I have gathered for quick reference:

* Short term trend is bullish though there can be good resistance at 823.
* Primary Bear Trend continues and this latest rally is no indication of a change in Main Primary Trend.
* Resistance Levels - 823, 838, 855, 876.
* Support Levels - 799, 784, 749
* Below 749 bulls will be in danger.

Nifty Future:
Today was March series expiry and the way Nifty closed, many option writers must have got thrashed as as early as the start of this week the options OI data was pointing to a close near 2800. Now, one should be careful before we see April on our calendars as NAV prop-up efforts or the expectations of that could make things volatile.
Looking at various charts I have come to following conclusion:
  • Today Nifty Future tried to peirce 3100 in last 30 minutes of trade but drifted down from there to 3064. As I have stated in my previous posts, 3140 is resistance area after it successfully conquered 2975.
  • Short term trend is bullish but Primary Main Trend is still bearish. The kind of vertical rally we are witnessing is not any indication of threat to the Primary Main Trend.
  • Resistance - 3140 - 80, 3268. If Nifty sustains above 3200 then Main Primary Trend itself can be in danger.
  • Support - First immediate support is at 3008 - 29, then 2972, 2830 - 70 and last 2730 - 50. Breaking 2730 on closing basis will be end of this euphoria.

Monday, March 23, 2009

S&P 500 and Nifty Futures Analysis

Dear Readers,
Looking at various timeframe charts - Hourly, Daily and many indicators including MAs, trendlines, previous support and resistance etc, I have following view on markets:

S&P 500 Future:
In my previous posts I had maintained several levels to watch out for on S&P 500 Future - 779 and 749 being most important. As you can see 749 did prove to be good support and 779 good resistance before it was taken out on 18th March. When it went above 779 I thought it would act as support on retracement but it did not.
So, now looking at charts I would put following levels to watch out:

Support - 761, 749
Resistance - 804, 838

Nifty Future:
On Thursday I clearly told in my post that markets are showing strength and one should avoid shorting then and today's move in Nifty Future would have thrashed shorters (it actually did). One particular thing to note is that OI was down nearly 50% in March series Nifty 2800 call, on which many analysts in media were betting and advising shorting.

After today's decisive upmove (it was a definite breakout as 2855 was taken out with good volumes) next resistance comes at 2975 as stated in my Monday, 16th March post. If it manages to get past that level, then next big resistance is at 3140! 2830 - 2850 should be support now.

Sunday, March 22, 2009

Interesting Idea - "Welcome Immigrants"

Dear Readers,
These days are going to be remembered in History. People will talk about the first decade of this century for a lot of things. No wonder America and US will be most used words. I have been saying that these are interesting times but almost every month there is at least one event that makes these times even more interesting.

This week there came an idea, a brand new idea by John Mauldin and its one hell of an idea! indeed! Its no secret that US is under tremendous pressure due to the bust of housing and credit bubbles and economists all over the world are puzzled on any possible solution. What is worse is this crisis has infected entire globe and if there is no fast solution whole world will fall into The Great World Depression. So many economists, so many solutions. Some say make USA - USSA (United SOCIALISTS States of America) by nationalizing rogues of past, some say print, print and print more fiat money, some say throw out the immigrants as they are snatching jobs from Americans. There are others who like me who want rule of real Free Markets and let the excesses work out themselves, let the rogues get punished by Mr. Market. But, the wonderful idea by John is so different that it made me put it here in this post.

John's idea is simple - let US have a brand new scheme for immigrants, offer them citizenship if they buy a house! John is so brilliant! This idea has origin like this - There is a long and painful process for obtaining US citizenship and all immigrants who are living there know it. If those immigrants are given an opportunity like this they will rush in and a good part of house inventory will get sold resulting in house prices stabilizing and may be growing in a year (or even earlier). As this crisis originated with housing downtrend, it would get corrected with stabilized house prices. This idea is indeed awesome and there is going to be a good debate over it.

This is not first "one helluva" idea by John Mauldin and if you read his letters as do I then you must remember his idea of scraping "Marked to Market" rule. This was also a very interesting idea in itself as if banks are allowed to keep those toxic products on their balance sheets and they don't need to "Mark them to Market" periodically it would relieve them from substantial pain and writeoffs. Its not that John is alone in such big ideas, there are ideas like forming a "BAD Bank" that buys all toxic assets (?) of all other banks and make them healthy again! These two ideas are already under serious consideration by US Govt (as media reports) and I am sure this "Welcome Immigrants" idea is also going to be considered seriously.

Now, the problem is we humans never learn from our mistakes (at least the majority of us, and that's what matters). History tells us that Keynesian economics is a blunder and the more we are with it more we are going to suffer in future, but still majority of today's economists follow Keynes! No lessons learned from so many events in the past century before and after Keynes theory was official!

Let me put my views on this particular idea of "Welcome Immigrants". On first reading it looks like "why didn't anyone think about it for so long?" Now, thinking about it following things come to mind:

Immigrants in US are desperate for American citizenship and all will rush in to buy houses to grab this "once in a lifetime" opportunity. Is it true? yes, may be. But have they gone through the details about how many of the immigrants already have bought houses there and are now facing same issues like foreclosures, falling house values etc. I don't know the stats but I guess a good percentage falls in this category.

The other thing that needs to be considered is law of demand and supply in its crudest natural form. It means price discovery is a result of balance between natural demand and supply factors. This has more to do with mass psychology rather than imagination alone. Now, considering the economic outlook is going to be subdued at best and house prices although down a good percentage from their peaks, fundamentally they are still overvalued in most parts of US (the real value is when majority of people can afford to buy houses with their own money and this is certainly not the case). The temptation of American Dream may not be that big now.

Even if we consider that above mentioned constraints do not pose a big problem in the way of this brilliant idea, there are issues that must be taken care of:

Public Anger: Ordinary people do not understand complicated economics and their emotions always have upper hand in their decision making. Today most Americans see immigrants as their competitors rather than bricks of growing economy. This psychology reflects truly in statements of some congressmen who publicly have called for "Fire non-US workers first". There are already such rules in place for TARP receiving firms! Can we really expect the public mood to turn 180 degrees? Very difficult.

Having said the above, I am not very hopeful of this idea materializing but if it does, who knows it might work! But, this will be yet another BIG mistake in terms of intervention in Free Market, but who cares? When they are working day and night to invent one after other "Crisis Postponement Plan", we can expect anything.

Thursday, March 19, 2009

Markets Showing Strength

Dear Readers,

In my post on Monday, March 16, I had laid out several levels to watch out for in S&P 500 of US and NSE Nifty of India. Let me present my views as the markets showed interesting moves.

S&P 5oo Future:
In that post on 16th Mar, I stated that 779 is going to be good resistance and 749 to be good support. For two - three days S&P 500 Future traded in that range and on two occasions it took support at 749! (on 16th and 17th March). Yesterday it managed to break the upper ceiling of 779 and so far its trading above that. Now, the resistance of 779 has become support and as I had stated in that post it can be touching 804 and then 838 or so in short term, provided it doesn't break 779.

Nifty Future:
The Indian NSE Nifty index future gave nervousness to bulls for two days but it has also managed to save 2730 so far. The way Nifty Future traded yesterday and today, I have the feeling that bears are getting weak. The only thing bad for bulls so far is that they haven't been able to penetrate that 2855, the upper ceiling according to my view as stated in 16th Mar post. If bulls manage to get near that level in coming sessions I would preferably stay away from shorting (changed my 16th Mar view!) Not because there is some indication for long, but, because the way it is trading is not suitable for bears to jump in right away.

Now, I'd like to wait for a conclusive move either past 2850-55 OR below 2730, before that I advise caution for both camps.

Tuesday, March 17, 2009

Nifty and S&P 500 still in range

Dear Readers,
Yesterday I posted my levels for both S&P 500 Future and Nifty Future. Here is what happened and what is there to expect now:

S&P 500 Future:
I said 749 should be good support and it is still holding! In fact 749 is the low of today! Well, if it breaks today, then the other levels I posted yesterday are there (731 - 715 - 704). But, I think today we might see a test of the upper level - 779 (at the time of writing this post it is trading near 754). 779 is very important for the time being and it should be watched carefully.

Nifty Future:
I can not be more more accurate than I was yesterday! I put support at 2730 and resistance at 2805 AND today Nifty future made a high of near 2804 and low of 2730! So, today we could not see Nifty Future break either side of my first range -> 2730 to 2805. I hope tomorrow there will be a break of range either side, let us wait and watch, in the meantime, keep my yesterday's levels handy.

Monday, March 16, 2009

S&P 500 (US) and Nifty Future Analysis

Dear Readers,
Here I am presenting my views on the movement of S&P 500 Future and Nifty Future based on various charts(Hourly Chart, Daily Chart, Weekly Chart) and indicators (so no specific chart uploaded).

A Bear Rally is underway and the fierce nature of this rally in itself is indicator of it being a "correction" of prior (main) downtrend. Although it is most probably a Bear Rally, its not certain how long and how big it will last. So let me put down various levels to watch out for :

S&P 500 Future:

779 is going to be tough resistance and one should use that (if comes to initiate short position. If it manages to close above 790, then a possibility of testing 838 is on cards! So keep your stops tight.

749 should act as good support and if that breaks then look at 731 for support. If it trades below 731 then the range from 704 to 715 is next support, breaking this range on downside will be time to wait for new lows.

Nifty Future:
If Nifty future manages to get past 2805, then we can see 2855 very soon and that should be tough to break. My bet is for initiating a short here.

In case Nifty Future manages to get past 2855, we have 2975 as next resistance and then 3140. If we manage to see such high levels then it will be one great opportunity to those who missed last time to make positional short position as the Major Downtrend Line will come nearby and it has been a long time (nearly SIX MONTHS!!!) since Nifty Future even touched it!
On the downside 2730 is first support and if it breaks then I think 2625 can be next good support. If it breaks below that then a retest or break of sub 2500 levels can be possible.

Wednesday, March 11, 2009

The Big Analysts seem to Agree with me, Now.

Dear Readers,

This being my 100th post so I thought to throw some light on this bog's past. Please read on...

All of you who have been reading my posts here know what is my view, in general, for the stock markets and economy of US, India and most of the world. Whenever there were rallies I doubted them to be more like Bear Market Rallies rather than saying "its the bottom!" I had my reasons in support of my view - both fundamentals as well as charts were shouting in support of bears and the confirmation of that was when every time in such scenarios the masses were optimistic. And, by masses I don't mean that only ordinary people, it means most of the mainstream media and economists!

Its not that I was alone with this kind of view, in fact, there are prominent and respected guys like Bill Bonner(of The Daily Reckoning Fame), Dr. Rusty McDougal and Jon Herring (Investors Daily Edge), Robert W Colby (robertwcolby.com), Bob Prechter (EWI president) and partially John Mauldin (FrontLine Thoughts) to name a few who were bearish on economy and markets but what I want to say is there were very few who doubted those rallies. John Mauldin was doing well but in the effort of proving his "Muddle Through Theory" he faltered every now and then, but, I admire his dissection of basics and his analysis.

The biggest failure of the year is OoO (Oracle of Omaha) (not quantitatively but considering his experience of past he failed the worst of all). In terms of being clean failure no one can beat Jim Cramer of CNBC's Mad Money show. Jim has managed almost 100% consistency in being wrong throughout at least past two years.

Want more of those guys? watch this video:

I started writing this blog June last year and I request my readers to check my posts and decide for themselves how good or bad has been my analysis - both technical and fundamental. By this I am not trying to "prove" that I was right or so so, what I am doing is exercising my right to show my achievements if any and I do think I was more consistent and proved right more often than not than many BIG analysts throughout the globe.

I read an article on bloomberg which tells how some analysts are there for 400 - 500 on S&P 500 of US. Well, those of you who are my regular readers know that I had posted those "unthinkable" views of 400 - 500(read last paragraph) way back (about two months) than these BIG guys. The above mentioned article is actually about Buffet and you can read how early I had predicted that there is something wrong with OoO and he is faltering. Some of my friends were furious on that particular post but emotions can not and should not suppress facts. Today we know there is something BIG wrong with Buffet - OoO.

There are many more thngs I would like to discuss like Fiat Money, Govt Interference, Crisis Postponement Plan etc, but time is short and you can go through the links to see for yourself how my views have proven to be.

Yesterday's market rally was awesome! but be aware, there "some" interchanges with "full" very rapidly in such extraordinary times.

Happy Trading

Wednesday, March 4, 2009

US Markets Make New Lows while Nifty Gives some hope of Relief

US Markets in Time Machine
In past few days there was a roller coaster ride for market participants. Despite Obama and Bernake's BIG efforts with respect to stimulus packages and saving continually falling big dying elephants (Citi, AIG etc), US markets registered new lows and are now 12 years back in time ! Greats like Buffet are hiding under carpets (there advice was buy, buy and buy AND that too way up from here !).

Its not that I am happy about how things are unfolding, I think wahtever we are witnessing is not the surprise, the surprising element is how these politicians, policy makers and Keynesians are handling the situation. Had they let Market Forces( liquidation in this case) take care of the preceding excesses, we would have started seeing some ecovery by then. But, they chose the wrong path instead and the result is we are still in the primary phase of this crisis, a lot worse is yet to come.

Nifty Closed with some hope for Bulls

After the above thoughts, let me focus on Nifty Future trading. Today on intraday chart of Nifty Future I got a hint of a relief for bulls. Looking at 15 Min Chart I arrived at following points:
  1. Nifty Future managed to close just upside the shown downtrend line.
  2. It closed near highs, suggesting a possible gap up opening tomorrow.
  3. If we take into consideration the swing of 2669 to 2584 down move, Nifty Future twice tried to break the 61.8 % retracement level but could not. This if acts as resistance (2637) then there may be a delay or cancelation of possible upmove by Nifty Future. These days certain things like "Global cues" can overturn any overnight traders' faith, so much will also depend on how these cues are there when Indian Markets open.
Happy Trading Friends...

Sunday, March 1, 2009

Nifty, S&P 500 and Oracle of Omaha

Dear Readers,

Today I am restarting my regular posts on US and Indian Market indexes. Let me start with NSE Nifty Future with Daily Chart as my instrument of analysis.

Looking at the Daily Chart of Nifty Future, I arrived at following :

  1. The Main Downtrend Line is too far above current level which means even if Nifty Future could manage to rally upto 3300, it will still be in bears' hands.
  2. The EMAs are very close to each other, suggesting a breakout either side can be a big one.
  3. The EMA trend is negative as 13 EMA is below 34 EMA which is below 55 EMA.
  4. Look at Line 1, 2 and 3. Line 3 is first resistance and so anything near 2820-30 will be facing big selling pressure. Line 1 is next resistance near 3000 (looks almost impossible) and Line 2 is last resistance before Main Downtrend Line (Not likely at all).
  5. I'd be happy to initiate fresh shorts at near 2800 to 2830 Levels.
Do you remember what I said in one of my recent post about Nifty? Nostalgic, Deja Vu. Yes, it has done exactly what I anticipated. Read if you missed it.

After putting my thoughts about Nifty Future, let me take this opportunity to comment on my erstwhile ideal Mr. Warren Buffet. I have always admired Mr. Buffet but his actions off late are no worse than that of either politicians or Wall Street devils. Please read this on my AllNewsViews blog.

My worries about Mr. Buffet are coming true.

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