Morning Cut Recommendation

Hello,

 

Markets went sideways into a consolidation range with the total range of the market itself (Nifty)  being limited to a mere 32 points. This can be seen as either a step up zone for the next major move upwards or this was a period of distribution (which seems unlikely given the small range and buying by FII's).

 

Yesterday US markets once again moved up once again and hence reduced a chance that markets here will open in negative territory and hence provide a potential for a Evening Star Pattern. The validation of such a pattern will increase if markets break below yesterdays low while it would get invalidated if we break above yesterdays high.

 

Yesterdays high zone of 5110 will act as short term resistance point above which the next resistance is at 5500. On the lower side, support for nifty exists at 5465 and 5515. Implied Volatility of ATM Nifty options dropped further to 14.8 while PCR ratio for Nifty came in at 1.42.

 

 

Prashanth

Mythri Stocks & Shares Pvt Ltd.,

 

 

Morning Cut Reco

Hello,

 

Our anticipation of a bullish move based on the Hammer Candlestick chart formation worked beautifully. Markets opened positive and shot up in the afternoon on back of strong US Futures / European markets. With the US Markets having closed very strongly, we are sure to rise above our next resistance level of 5500 but the bigger question that remains to be answered is if we can break above 5550 in this move.

 

While Oscillators on the daily charts are still in the mid range, on the hourly charts a strong rise can pull them into Overbought territory from where a reaction - either time wise or price wise - can happen. Put Call Ratio on Nifty came in at 1.41 while Implied Volatility dropped to 15.8. Resistances for Nifty are at 5500 and 5550 while supports come in at 5400 and 5350.

 

Regards

 

Prashanth

Mythri Stocks & Shares Pvt Ltd.,

 

Morning Cut Reco

Hello,

 

Markets stopped at the crucial 5350 level and bounced back from there to create a hammer candlestick pattern. The Hammer is a bullish reversal pattern that forms after a decline. In addition to a potential trend reversal, hammers can mark bottoms or support levels. Since it has come after a decline, hammers signal a bullish revival. The low of the long lower shadow implies that sellers drove prices lower during the session. However, the strong finish indicates that buyers regained their footing to end the session on a strong note. A confirmation of hammers require further bullish confirmation. The low of the hammer shows that plenty of sellers remain. Further buying pressure, and preferably on expanding volume, is needed before acting. Such confirmation could come from a gap up or long white candlestick. Hammers are similar to selling climaxes, and heavy volume can serve to reinforce the validity of the reversal. Yesterday's volume while not very huge was more than the volume of Monday and hence significant.

 

Put-Call Ratio on Nifty came in at 1.47 and Implied Volatility at 17. Maximum Put open Interest is at 5400 further confirming that 5350 may sustain for the short term. Among Nifty Call Options, 5500 - 5600 carries max OI thus signifying the resistance at the level.

 

Regards

 

Prashanth

Mythri Stocks & Shares Pvt Ltd.,

 

Morning Cut Reco

Hello,

 

Despite the strong close on Friday in the US markets, our markets after opening strong went down throughout the day to finally close the day essentially flat. Our markets seem pretty weak now with both the short term and medium term trend having turned weak.

 

A confirmation of weakness shall be available once Nifty breaks down below the 5350 level which is the lower pivot level of the current range. As indicated, we have on the short term broken down below a rising channel providing us with a immediate target of 5190.

 

PCR ratio for yesterday was 1.43 with maximum activity on Nifty 5400 PE and Nifty 5500CE. Maximum open interest comes in at 5400 PE and 5600 PE and hence a breakdown below 5400 should also see a shift of the 5400 position as it can be a support otherwise.

 

Regards

 

Prashanth

Mythri Stocks & Shares Pvt Ltd.,

 

 

Re: [Technical-Investor] Thoughts on systems & benchmarking

Leverage in itself is a good thing in Super Bull markets and will get a really bad name once this comes to a grinding halt like 2008.  That same leverage will take accounts down to levels to wipe off a couple 2-3 years of gains.  So, leverage should be use carefully and after full consideration of risk like Prashant is talking about. 

In addition, everything in investing has to be benchmarked against two major factors:

1. Returns of FD before taxes
    - This needs no management of assets except for 1 hour per year in a 1 year FD
2. Returns of Equity MF without leverage
    - To me Reliance Equity (growth) is the best and longest term benchmark
    - A subset of the above could just be the measure of the Nifty ETF (which has low fees) Performances
    - This needs approx 1 hour a month or 1 hour a year depending on how active one wants to be using this investment vehicle

If one can beat these returns over the last 1, 3, 5, and 10 years, regardless when you started, before a Portfolio Manager of Your Own Personal Funds.  If not, then resort to one of the above.   Now, if a leverage portfolio is used, then you have to cut back the leverage in the benchmarking, or come up with a similar leverage on the above measurements (putting a FD return with borrowed money on margin, which is available in the US, but not in India, as far as I know). 

I will even add one more factor to it.  If you are doing an active portfolio management and it is taking you 10 hours a week on it, then what one has to subtract from the returns is the money you would make in a job or business by putting those hours into the job/business.  That has to be factored into the benchmark since the above 2 factors are demanding 1 hour a month or 1 hour a year of time. 

Now, when it comes to trading systems, life is exciting when you develop one, which may be back tested up the wazoo, but will not meet the requirements and performances of future market environments. 

Hence, I love the discussions that a few of the Seniors have been doing about making things simple and keeping it to MAs or a simple combo of technicals. 

Prashant has eluded to most of the above, but if one reads it carefully......I just added some more color and clarity to it. 

KKP



On 8/26/2010 8:30 AM, Prashanth wrote:

 

Hello,

A friend of mine was recently suggesting to the group where I was part of that the easiest way to pick stocks was to get MetaStock, run its indicators and select a list of stocks based on Discretion. I generally argue against such BS, but did not have the mood to do so and left it off. But the information he sought to convey is that all you needed is MS and a data provider and well, you could well be on the way to riches and glory.

 

Just yesterday I was discussing with a friend cum client of mine the importance of "Benchmarking". I believe that if a system is not able to generate at the minimum twice the return (after deducting all expenses incurred in regard to trading that system) of the said Benchmark, it may be wiser to be a Buy and Hold (or shall I say Hope) investor since one can spend the same time doing some other profitable work.

 

Generally when computing returns, people forget the risk they take (leverage) and instead calculate directly the net profit / loss A friend of mine recently showed me a list showing the returns generated by him for his clients. He has over 9 months averaged around 5% per month, net of brokerage & taxes. While on the face of it, its a commendable performance, what one misses is the fact that he uses nearly 5X leverage to achieve such returns. The question that one should then ask is whether the risk is worth the reward. 5x is no small leverage and one bad move can wipe out returns generated over months together.

 

Cheers

 

Prashanth

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--  Plan Your Work and Work Your Plan to Get Ahead in 2009-2012.....  KKP Investor ------------ ------------ Bull Markets are Born on Pessimism,  Bull Markets Grow on Skepticism,  They Mature on Optimism, and  Die on Euphoria - Sir John Templeton ------------------------------------ Bear Markets are Born on Recessionism,  Snowball on Momentum & Technical-Breakdowns,  Mature on Eco-Political-Nightmare Talks, and  Die on World-Is-Coming-To-An-End Euphoria - KKP  -----------------------------------------------  >BUFFET: My rule is to be fearful when others are greedy,and be greedy when  others are fearful.   ABOVE ALL: Whatever God Does, Accept that as Good; Leave Behind ALL Other Judgements/Justifications. ----------------------------------------------------------------------------------------------------   Disclaimer> Do you homework for your ownself and then invest.  My ideas are not advice.       

Morning cut Recommendation

Hello,

 

Nifty ended the settlement day nearly flat. The august settlement has seen a rise in Nifty to the tune of 69 points. This thus is the 3rd consecutive positive close. Market-wide rollover was at 80% and Nifty rollovers saw 76% rollover into the September series which is pretty near to historical averages.

 

Yesterday for the second consecutive day FII's were on the selling side. US markets closed below the psychological level of 10,000 for the first time in August. Markets may be range bound today on account of both it being the first day of the new settlement and also today being the last day of the week

 

Short term traders may continue to hold their short positions with a stop loss above 5500 whereas medium term investors trading with a weekly perceptive in mind can hold their long positions with the stop being below 5450 as explained in our Monday outlook.

 

Regards

 

Prashanth

Mythri Stocks & Shares Pvt Ltd.,

  

Thoughts on systems & benchmarking

Hello,

A friend of mine was recently suggesting to the group where I was part of that the easiest way to pick stocks was to get MetaStock, run its indicators and select a list of stocks based on Discretion. I generally argue against such BS, but did not have the mood to do so and left it off. But the information he sought to convey is that all you needed is MS and a data provider and well, you could well be on the way to riches and glory.

 

Just yesterday I was discussing with a friend cum client of mine the importance of "Benchmarking". I believe that if a system is not able to generate at the minimum twice the return (after deducting all expenses incurred in regard to trading that system) of the said Benchmark, it may be wiser to be a Buy and Hold (or shall I say Hope) investor since one can spend the same time doing some other profitable work.

 

Generally when computing returns, people forget the risk they take (leverage) and instead calculate directly the net profit / loss A friend of mine recently showed me a list showing the returns generated by him for his clients. He has over 9 months averaged around 5% per month, net of brokerage & taxes. While on the face of it, its a commendable performance, what one misses is the fact that he uses nearly 5X leverage to achieve such returns. The question that one should then ask is whether the risk is worth the reward. 5x is no small leverage and one bad move can wipe out returns generated over months together.

 

Cheers

 

Prashanth