Friday

NIFTY

Post a Comment June 19, 2009 – 9:19 am |   | Permalink |  Print This Post |

About a week ago, after hearing our case (and enthusiasm) on shorting the NIFTY, a good friend of ours joined us short the NIFTY at 4450 ($5/point). Being a busy doctor with no time to monitor markets, I gave him a call yesterday to inform him that our shorts are finally paying dividends - and that he has $1000 (200 x $5) on the table which should pay for our trip to Bali later this year. We suggested taking at least half of that off the table. To our disappointment, he confessed that he had taken a loss and closed out when India went up to 4650(200 x $5 loss - Ouch!). When asked why, he says that he is convinced “after reading several articles on the news” that this was a new bull market and that India was heading for the heavens without coming back to his entry level. Let this be a lesson learnt for all, markets never move in one direction. Even if the NIFTY was heading higher, it would inevitably pull back. Even at current level, from a macro perspective, the NIFTY is still very high.

Our friend was one of many who made up the “Dumb Money” group. The dumb money indicator have since come back down from overbought levels. The headlines are slowly trying to push markets higher - Bloomberg is starting to report a disproportionately higher number of experts calling the “end of the recession”. Of course, the media acts like a knee jerk response. If markets go up, they feel the NEED to explain why the Dow went up yesterday - and so more bullish experts will be quoted to explain the move. On the contrary, if the Dow tanked 200 points last night, every bear-expert will be on the headlines. The poor “mom and dad-traders” (or doctors) who attempt to trade will therefore always be a step behind. Do NOT be influenced by the media - if anything, act contrarion to it. We are looking to commision a new research to create a new indicator - we call it the Media Indicator. The idea is to calculate the ratio between “Bull” versus “Bear” news, and to subsequently chart them. We then overlap the Index over the Media Bull vs Bear Ratio chart, to see if there is a correlation between the two. Our hypothesis is they should be inversely related, ie when the Media gets bullish, it is time to be careful (and vice versa). The problem is some news cannot fit nicely into a Bull or Bear category, and the process of categorisation may be subject to interpretation (hence bias). We will continue to look into the feasibility of this research. All ideas welcomed.

Back to the NIFTY for today, we will look to take profits. The NIFTY is currently at the 30 day moving average - the first battle field between bulls and bears. To be absolutely safe, we would suggest taking profits here at 4230. Since it is so near 4200, that should be breached based on our Round Number Theory. We will lighten up $10/point at 4200, and let the rest run.