5 RULES YOU MUST READ

1. Buy and hold is dead.

I hate to be the one to tell you this, but “buy and hold” is a marketing slogan, not a proven investment philosophy! It was invented in the ‘90s by mutual fund companies and Dalal Street to lure more people into investing.

Ask any investor who used to believe that “buy and hold” was the right strategy—that good stocks would always go higher if they were only held long enough—what they have now to show for it. Only losses!
Look at the brutal roller coaster “buy & hold” investors have been taken on over the last 10 years in the NSE, BSE, DJIA, NASDAQ, and S&P 500 indexes…
…and how the world’s best blue chip brands—companies like Reliance, LT, BHEL, Suzlon in India and GE, Cisco, Intel, Coke, and Microsoft in the USA—went down 50-70% or more over this same period.

The key to profiting in today’s market is to actively manage your money.

2. Diversification won’t save you.

You’ve heard the bromide that says you can survive anything with a diversified portfolio? It’s wrong. In a down market like we just lived through, everything goes down.

One of the distinguishing features of this bear market has been that all asset classes, economic classes, industries and regions are now correlated with each other. It’s about 90%, the highest since at least 1984, according to one study.

Financial, power / energy, technology, infrastructure, drugs, steel and real estate stocks… they all went down 72%, 42%, 62%, 58%, 62% and 85%.

Diversification didn’t offer a lick of protection. Just ask the president of any mutual fund / hedge fund, who announced not long ago that their well-diversified xxx billion endowment was preparing for “unprecedented” losses that would lead to corporation-wide spending, salary and employment cutbacks.

3. Speed is in.

Unfortunately, people think they lack the intestinal fortitude to trade more frequently, but what they don’t know is that it doesn’t take guts to trade. It takes flexibility and a good plan. I’ll give you both.

In today’s market especially, it is critical that you take advantage of advances. We have seen—and will continue to see—plenty of big knee-jerk reactions to news that present big profit opportunities for the nimble.

4. Don’t take a knife to a gun fight.

In today’s market, you must use every weapon at your disposal. A mercenary uses whatever weapons work—you don’t just go into battle with your .38 caliber, you take your knife, Hanumanji ka gada, Ram’s brahmastra, Krishna’s Sudarshan Chakra and Arjun’s Dhanush and poison with you, too. You never know what weapon will get the job done. The same goes for us. We will use whatever tool gives us the best chance to win today—stocks, options, bonds, commodities, forex. If it can help us make money, it’s in our investing toolkit.

5. The stock market isn’t the most important game in town anymore.

As we just saw firsthand, the credit market has the power to unravel the stock market, cripple the economy and take down major American icons (like Lehman Brothers and AIG). The credit market is now FIVE times larger than the stock market today.

Bottom line: You simply MUST understand the credit market to thrive and survive as an investor.

BANKNIFTY AND NIFTY FUTURES LEVELS FOR 10TH JULY 2014

BANKNIFTY FUTURES LEVELS FOR THE DAY:

BANKNIFTY RANGE FOR THE DAY IS 14460-15475
Resistances are at 15100-15180-15255-15330-15475 and supports at 14930-14850-14750-14610-14475
Above 15200 is a range breakout with further targets/resistances placed at 15330-15475-15615
Below 14820 is a range breakdown with further targets/supports placed at 14610-14475-14325
BankNifty Futures is strong only above 15055

NIFTY FUTURES LEVELS FOR THE DAY:

NIFTY RANGE FOR THE DAY IS 7848-7350
Resistances are at 7635-7660-7720-772-7820-7848 and supports at 7565-7535-7500-7455-7400-7350
Above 7690 is a range breakout with further targets/resistances placed at 7770-7820-7848
Below 7505 is a range breakdown with further supports/targets placed at 7455-7400-7350
Nifty Futures is strong only above 7620

A VIEW ON NIFTY SPOT FOR 10TH JULY 2014 AND POST BUDGET TRADE SETUPS

ECONOMIC SURVEY AND THE RAIL BUDGET INVITE JEERS FROM BULLS AND CHEERS FROM BEARS

Traders love tasty gourmets even at the cost of health. A margosa which promotes health with time is a strict NO- NO!!! Perhaps the Central Governance in the past has forced us to applaud short term solutions to long term problems thereby cesspooling us into the gorge right at the rocky bottom.

The knee jerk reaction shows the lack of patience and poor understanding of the ground reality. The lack of depth in the markets at higher levels is also alarming. Vertical moves southwards with such velocity can never be flavoured with rationality. The “herd mentality” is back and we now stand in the mind field of mayhem. The goodies have been discounted and the budget unless it is truly exceptional in oratory skills along with the curative powers – Nifty is set to kiss 7370-7230. As we had been mentioning “Nifty is likely to maintain its momentum which can take it to 7838-7877-7920 on or before the 13th July. We have already seen Nifty hit 7808.85. However, If the sanctity of 7367-7230 is maintained then the rally may be extended up to 21st July and 7838-7920-8065-8283 are possible.

Going forward the band of 7570-7612-7633-7651-7683.15-7700-7748-7782-7808-7838-7920-7998-8063-8123-8253 are the resistances and 7551-7507-7482-7464-7442-7394-7367-7230 is a good cluster of supports”.

Nifty chart: a mid-week update (Jul 09 ‘14)

Perhaps in a pragmatic precursor to tomorrow’s budget, the railway budget contained no populist measures. The intent to consolidate and modernise seemed clear on a cursory reading. May be the devil is in the detail.

Proceedings at the Lok Sabha hit a new low on the ethics and decency scale after the Railway budget was announced. Semi-educated MPs from the ruling party and the opposition exchanged vulgar language and nearly came to blows amid pandemonium in the well of the house.

As if on cue, Nifty sank by more than 150 points after touching a new lifetime high just above the 7800 level. What caused the selling? Who knows? Some times the force of ‘gravity’ becomes strong when an index rises too high without a proper correction.

FIIs have been net buyers on every trading day this month, while DIIs have been net sellers.

Nifty formed a ‘reversal day’ pattern (higher high, lower close) on Tue. Jul 8, supported by strong volumes. That may be the signal for an intermediate down trend. The index is trying to cling on to support from its 20 day EMA, but it appears that the support may not hold for long.

If the index falls further, the 50 day EMA and below it, the 47 points ‘gap’ formed on May 13 ‘14, are the next support levels. A 10% correction from yesterday’s peak of 7808 will drop Nifty to the ‘gap’ area. If that happens, it will be a good buying opportunity.

Can Nifty fall even further? Any thing is possible in the stock market. But remember that the index is in a long-term bull market. A 10% correction will surely attract buyers.

Daily technical indicators are turning bearish. MACD has crossed below its signal line in positive territory. ROC is resting at the ‘0’ line after crossing below its 10 day MA. RSI has dropped to its 50% level. Slow stochastic has dropped sharply from its overbought zone.

The correction is likely to continue a bit longer – unless there are some market-friendly announcements in Thursday’s budget. Use the dip to add.

Gold and Silver charts: bear market rallies coming to an end?

Gold Chart Pattern

The 6 months daily bar chart pattern of gold spiked up on huge volumes on Jun 19 ‘14 to rise above the 1280 level and its 50 day and 200 day EMAs into bull territory. Since then, gold’s price has traded above all its three EMAs for 11 straight sessions.

The long-term moving average has provided good support on the downside. Both the 20 day and 50 day EMAs formed bullish ‘rounding bottom’ patterns, and are rising towards the 200 day EMA. These are bullish signs.

However, the entire rally from the Jun 3 ‘14 low of 1240 is technically a bear market rally. Why? Gold’s price crossed above the 1330 level intra-day on Jul 1 & 2, but failed to close above it. Note that 1330 is the previous top touched in Apr ‘14.

The price band between 1330-1350 is a resistance zone, which needs to be crossed convincingly if bulls are to overcome the Mar ‘14 top of 1395, and regain control. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will be a technical confirmation of a return to a bull market. Till then, bears will remain on top.

Daily technical indicators are in bullish zones, but correcting overbought conditions. MACD is above its signal line in overbought zone, but forming a bearish ‘rounding top’ pattern. RSI has slipped down from its overbought zone. Slow stochastic formed a small ‘double top’ reversal pattern and looks ready to drop from its overbought zone.

Trouble in Iraq and slow growth in the USA may have encouraged bulls to take long positions. But the rally appears to be coming to an end.

On longer term weekly chart (not shown), gold’s price moved above its 20 week EMA but is facing strong resistance from its 50 week EMA. Gold is trading more than 50 points below its falling 200 week EMA in a long-term bear market.

Silver Chart Pattern

The 6 months daily bar chart pattern of silver followed the yellow metal’s example and rose sharply to enter bull territory on Jun 19 ‘14, and has traded above its 200 day EMA since then. Strong volume support raised hopes of a trend reversal.

All three daily technical indicators are inside their respective overbought zones, but beginning to correct. The 200 day EMA has provided good support on the downside so far. If the support holds, then silver’s price may attempt to cross above the resistance zone between 21.25-21.75.

Unless that happens, bears will use every opportunity to sell, as they have been doing for the past two trading sessions.

On longer term weekly chart (not shown), silver’s price moved above its 20 week EMA but is facing strong resistance from its 50 week EMA. Silver is trading more than 3 points below its falling 200 week EMA in a long-term bear market.

S&P 500, FTSE 100 charts: bulls in charge

S&P 500 Index Chart

The 6 months daily bar chart pattern of S&P 500 continued to defy gravity, as it soared to touch, and close at, a new lifetime high of 1985. The psychological level of 2000 is just a hop, skip and jump away. All three EMAs are rising, and the index is trading above them in a long-term bull market.

A few dark clouds are visible on the horizon. Note the volume bars, which have been sliding as the index rose higher. Thursday’s new high was accompanied by the lowest volumes in 2014. May be the long weekend led to curtailed trading activity, but a bull market requires volume support to sustain.

Daily technical indicators have re-entered their respective overbought zones, but failed to touch new highs with the index. An index can remain overbought for long periods, but combined negative divergences on the indicators can lead to a correction at any time.

Stay invested, with a trailing stop-loss.

FTSE 100 Index Chart

The 6 months daily bar chart pattern of FTSE 100 bounced up sharply from the 6700 level and climbed above its 20 day and 50 day EMAs to touch an intra-day high of 6875 on Fri. Jul 4. The index closed the week above the 6850 level in bull territory – with a weekly gain of more than 100 points.

Daily technical indicators have turned bullish. MACD has crossed above its signal line and entered positive zone. Both RSI and Slow stochastic have risen above their respective 50% levels. But volumes were moderate. The index formed a ‘doji’ pattern (in candlestick parlance), which is a sign of indecision. Bears may use the opportunity to fight back.

The index is trading above all three EMAs in a long-term bull market. But the May ‘14 top of 6895 needs to be crossed convincingly before bulls can regain full control of the chart.

Bottomline? The daily bar chart patterns of S&P 500 and FTSE 100 indices show long-term bull markets in progress. S&P 500 is rising to touch new highs regularly, but the index is looking overbought and ready for a correction. FTSE 100 is recovering from a correction after touching a new high two months back. Stay invested, but maintain trailing stop-losses.

BANKNIFTY AND NIFTY FUTURES CALLS FOR 7TH JULY2014

BUY BANKNIFTY AT/ABOVE 15610 TARGET 15775-15865-15930 SL 15490
SELL BANKNIFTY AT/BELOW 15760 TARGETS 15600-15510 SL 15880

BUY NIFTY FUT AT/ABOVE 7756 TARGETS 7814-7845-7867 SL 7711
SELL NIFTY FUT AT/BELOW 7808 TARGETS 7751-7720-7670 SL 7852