Europe and India

Well, just like last (MACD) post, I cannot delay this one any further. I have been talking about this post for  a while now. Just like I checked few stocks of NIFTY to see any sign of stress in this rally, I wanted to check few global equations as well. Lets get on with that.

Europe

I was slightly confused about which index of Europe should I analyse; choices being German DAX, French CAC40, UK FTSE100, Spanish IBEX or Italian FTSEMI. All of them have their strong reason to warrant a look but given the dearth of time, it was impractical to post all of them. Facing probably same dilemma, some noble fellow has already invented European Top 100 index which tracks the performance of most widely traded 100 stocks across 9 European exchanges and weighed according to total Market Capitalization and Gross National Product of each country. Details of these stocks can be found here. Here is the chart.

The Index has been nicely moving up since June. It has just now broken the lower line of the channel but that may not be a decisive move. Interesting part is about its close proximity with 50 Moving Average which is at 225.26 and present level of 227.37 is tantalizingly close to it. RSI is at an extremely comfortable level but MACD is showing little drop in momentum though it is not exactly at alarming level.

Very important level to watch out here is low of first week of September which was around 222. A decisive break of that low will mean a lower low negating the present bull run for the first time since it's start. Rest of the indices in Europe are more or less having similar charts and similar predicament. A few more trading sessions should give us some more clarity and possibly very clear (and beneficial) trading opportunity. As of now, as I said, I prefer short side in the present series.

If I wait till I compare everything I want, this post would probably never happen. So I want to make few more post with title like USA and India, Commodities and India, BRIC and India (hope you get the idea) to see how do we fare so far compared to rest of the World and how much steam is left before we roll over to some correction. Hope to get some real time for that which is becoming increasingly difficult. Wish me Luck. Amen.

Happy Trading in the meanwhile.

Fed says no QE3... Really?

I am sorry for this abstract post in between. Actually idea of this post appealed to me so much that I postponed the idea of technical tutorial post for the time being.

Last week I was listening to recent speech of Federal Reserve's Bernanke where in he was saying that he is ready to start next round of Quantitative Easing (QE) if economic conditions need it. Now as readers will recall that we have had two rounds of these QEs already where Fed has printed (not literally) more than $1.5 Trillion to infuse liquidity and stabilize the markets. Europe followed it with a fancy name of LTRO and even China also played on with some heavy infrastructure investments. (If you really want to know how much is $1 Trillion, I really recommend looking at this) This money cannot be really printed and it stays in existence only in the form of Treasury Bills which the Fed buys. One common thing about QEs in the past has been increase in price of commodities and equities that they result into. We have seen rallies in almost all asset classes every time QE has been announced with the periods of higher inflation in developing markets.

Anyways, that is not what we want to discuss here. What prompted me to write this post is my doubt about the validity of Bernanke's statement that he WILL start QE3 if needed. Now we all know that Fed is not an institute who has taken an oath of speaking truth all the time. All the data they publish has to be taken with a pinch of salt and many time their data have been published selectively, with a lag or not at all (caution: these are unsubstantiated statements... obviously). So I have my own doubts that QE3 is already in play.

Why do I say that? Just look all around us... every asset class is suddenly on fire.

1. Gold

Gold has broken out of its long consolidation and gone up by more $100 in a very short time. This is when very few analyst were expecting it. Also see the improved volume.

2. S&P 500

S&P has recently made 4 year high. Care to tell me some fundamentals reasons that may have prompted this?

3. Crude

I am posting Brent Crude chart as it is more relevant to India. In spite of all issues in Europe, slowdown in China, Crude has seen some handsome rally.

Not all asset classes see positive movement with QE. Obviously if you print more dollars you will see its value going down. Let us see the Dollar Index.

4. US Dollar

Dollar which was inching up nicely till June and even in July and August suddenly lost all the steam and is now below its 200MA also.

If all this was happening in expectation of QE3, we should have seen a sharp reversal after Bernanke's statement. All these assets would have shown the shock over Feds decision not to start QE3 immediately. Did not happen...

Apart from above, just look at the interest rates, bond yields and everything seems to be supporting this hypothesis. This post is also not about discussing whether QE is a good thing or bad thing in the long term (we can have that some other time in a separate post) but what is more important is what does it mean for our markets and our trade strategies. As I had said in last few posts that I would have expected markets to go down in this week and start (slow) recovery sometime next week or so... BUT if QE3 is in play, then all our prediction go out the window.

We do not know if QE3 is actually in progress and it is just a guess. If our guess is right, then we do not know how much money is being printed, how it will be spent and how and when exactly it will be deployed. There are too many ifs and buts and in such case I advice weak hearts to stay away or bite only what you can chew. It is very difficult to predict how long and how far this rally can and will go. At most we can wait for some indecision or reversal signal. I will be on a lookout for same (not 24 hours) and will let you guys know if I find something.

I am happy to be finally able to complete this post and I can now actually look to pick up the technical tutorial post from where I left it. Hope to complete it and make it available to you guys during the weekend itself if possible. Please let me know what do you think of this abstract post and whether you will like more such posts in between.

One more thing, I just realized that this post happens to be our 100th published post. Now that is some milestone to feel good about. Honestly, I never thought that I will be able to continue to write for so long (its over a year) and will reach 100 posts someday. This is your comments that have prodded me into writing more without any doubt. Keep them coming and I will keep writing. Happy Trading.

Attempted Trading Post

Hello friends, my apologies for not being able to make post 4 of Moving Averages. Been busy this entire weekend. However I am trying to at least keep the second post promise and though I have not got sufficient time to look at the charts in details, I am just posting what I think will unravel in the July series.

What a start we had for July series on Friday. Few would have expected (including me) that markets will cheer so much the announcements from new FM. As I had mentioned in last post that MMS (ManMohan Singh) had made all the right noises and even the clarity on few announcements by PranabDa will help. Also Euro Summit happened over the weekend and though I would have loved to make a detailed post on it's outcome the time is not on my side. In a nutshell, many people think (in Europe) that out of 20 odd Europe Summits so far since the problem started, only this summit probably not only met but also exceeded the expectations. Now, me thinks, the primary reason for this is the inherently low expectations that everyone had this time. Also though Angela Merkel was vocally against shared liability of Eurozone debt, she also understands that there are not many options left. Anyways what happened in Brussels is expected to prop up the markets at least in the short term so expect another rally tomorrow.

As for the trading; I believe that though we may see the rally in equities to continue, it may be short lived. If I have to trade, I would probably wait for the market to go up tomorrow and would like to bet on to a correction. This definitely carries a risk that market may continue to go up. It also carries the risk that the correction may not happen in time for July series.

The best way to cut risk is to buy a PUT Option at 5300 or 5400 Strike if you agree with my thinking. Right now 5300 Put Option is around 105 Rs and 5400 Put Option is around 160. I will probably wait for markets to gain tomorrow so that these prices drop and depending on the level of the markets and price of these two Option will do a quick break-even calculations and based on my risk appetite get in to one of them. Needless to say Options is a risky business and will not play it beyond my risk money.

Please note that this is not a investment or trading advice. It is only my personal thought process on what I would do if I trade tomorrow. I have been wrong more often than not and lost money. Please do not treat this as an advice and do not blame me for your decisions.

Finally, I would like to say that I am really really disappointed that no comments on my earlier post. Probably that is also one of the reason I could not write MA post 4. So this time do not let me down and let me know what you think of this post. Also its been long that I took any feedback from you guys so it would be great if you can let me know if you want any changes in the way this blog is shaping up. Will be waiting for your suggestions. Happy trading.

Disclosure: Been very busy so may not get time to trade at all. Right now I do not have any trading positions open.

NIFTY Charts - 2

Well, finally I got my data back (and half of my life with it). Without any delay, I will post the charts I was talking about.

Chart 3: NIFTY with Bollinger Bands

See how religiously NIFTY has followed the band. Bollinger Band as a Technical Indicator will be dealt soon but understand that the central line is a moving average line and two dotted lines are +/- standard deviation with respect to mean line. These two dotted lines act as Support and Resistance and width of this band indicates the volatility in the market.

Chart 4: NIFTY with Bollinger Bands

There are few more terms for Bollinger Bands like Bollinger Squeeze which we will see during tutorial. Earlier I said that I see something interesting with Bollinger Bands... was actually a false flag so no special case here. But thing to notice is Band was widening (volatility was increasing, no brainer) but now it seems to be settling down. The MA line is sloping up and usually price tends to return to mean band value.

I will keep updating these and more charts regularly.

In Europe, Greece is settling down with fresh Government. In India, Pranab Da Vs Sangma for President is like Saina Vs Myself in Badminton so no worries there (all right, I am not that bad). We badly need a new FM so Pranab should get in Rashtrapati Bhavan. Best Part of this week was RBI Action. We will realize correctness of this move only in the hindsight.

One last update is I have opened a twitter account for this blog (@Ethical_Trader). This will help me convey anything important in real time. So you guys are welcome to follow

Follow @Ethical_Trader

 I have also added my timeline on this blog so you can follow it without Twitter too. See on the right side.

Will post tutorial in a couple days. Will also see if some trading post can be made. Life is getting back to normal and lets hope it stays so.

Greece proposes RBI disposes

Well, what else can I say?

Greece results, though very close, allayed lot of fears around the World. Announcement from New Democratic party that Greece will remain part of Europe was a Masterstroke. We would have done very well and important resistance levels on the charts would have been taken out had RBI not spoiled the mood of the market.

But honestly, not cutting the rates is a good move I would say. Cutting the rates does not impact either inflation or growth in present context. These are affected more today from supply side constraints and policy paralysis respectively. RBI is right in keeping the real interest rates in positive territory (higher than inflation). In any case weaker rupee is better for us as I said earlier. A trader in me would have benefited with a rate cut though. Some other day perhaps.

Update on my hard drive; things are still bleak. Not much sure whether it will be back today.

Bear with the text only posts till then please.

Greece Elections Update

Polling is over in Greek Elections. As per the first exit polls, New Democracy (27.5% to 30.5%) and Syriza, anti-austerity party (27% to 30%) are neck to neck and the actual picture may become clear very late in the night.

Half a percent point is too close to call and no central banker or politician in Europe is sleeping tonight.

As for my Comp; I am not able to install charting software on my office laptop hence unfortunately cannot upload charts here. Will try to recover data from hard disk tomorrow and should post one thereafter. Till then these small posts will have to make do.

India at Crossroads - 3

This will most likely be the concluding post on India and World Economic fundamentals for the time being from my side. I am eager to get back to trading posts and our technical tutorials and I hope you too are looking forward to the same.

Well, as I said in last post that I have a project deadline this month and have been working weekends too; but couldn't resist this post since next week is so important on so many counts. And most important day of this coming week is not Monday... it is Sunday for a change. Today (it is already Sunday) we will have voting in the Greek Election. As you would recall, last election resulted in no clear majority with Radical Left parties scoring high. All their attempts to form a Government in May failed and hence another election. Already Europe and rest of the World is watching with held nerves as to what will happen in Greece. Powers that be in Europe and across the World would have already tried all tricks to secure win for Parties they prefer.

These Elections will close for voting at 5:00 pm Athens time with Exit Polls following immediately. Initial estimates of the results will follow in couple of hours and clear picture will emerge before midnight in Athens. Various polls have shown increased support for Left parties but stakes in this Election for entire World are too high and 14 days old polls (as per rules in Greece, all polls have to be before 14 days before poll date) can not be relied upon. This one single event will decide the course the World markets and economies will take in the short to medium term. Central banks from Frankfurt to London, Tokyo to Beijing are all on the edge awaiting what Greece is thinking and for good reason.

Then off course we have RBI meeting on 18th. Indian markets have already factored in 25 basis point rate cut amid contradicting statements from RBI and Finance Ministry officials. A higher rate cut will rejoice market but if RBI gives in to the threat of adamant inflation and does not cut rates we may see some sharp correction. Some cut in CRR will anyway happen me thinks. But to be honest, India does not look very good as a developing economy and the condition here looks more and more like stagflation (need to do a post on that perhaps).

Then there is another issue of Presidential Election in India on 19th (July) with results coming in on 22nd. I really wish, Congress should have shown this fighting attitude against Didi during FDI in retail debate. We would have been in far better situation today. But Pranab Da getting out of Finance Ministry is also a huge positive for India. Though I like him intellectually, he has failed miserably as FM. Almost every parameter measuring Economy is worse than the time when he took over. I really wish that he wins for the simple reason that we get a new FM. C Rangarajan would be my choice but I can settle for Manmohan Singh too.

These events will have a bearing on Markets in next week and volatility may remain high. It is usually a good time to make money by using Strangles or Straddles. Personally I am not in a position to take a call as to which is the likely direction for the markets. Last month and a half has been crazy so no shame in admitting that I am a trader who does not have any opinion on the market. In such situation I will do what I do best. I will look at the charts and see if they tell me something.

Hang on, I may post another one in half an hour. Its been long since I posted some charts.

Europe at Cross Roads

Well, you all know that a good part of my month long break was spent in Europe. It is really tough to see such amazing landscape and probably World's most beautiful and scenic countries in such a financial mess. It is really a tough world.

There are two different schools of thought on going forward, how this Europe Crisis will unfold. One school thinks that everything will be all right and sane people will take saner decisions, sanity will prevail and we will all live happily thereafter. Then, there are people who are out to prove Newton right (equal and opposite reaction). These people strongly feel that this whole sh*t is going to hit the fan soon and it will all end very badly for Europe. They feel that Eurozone will break, Euro as a currency will die and Europe will need decades to recover and come anywhere close to its past glory.

Now, obviously, there are damn good reasons for both these camps to think what they are thinking. There is a consistent stream of news coming from Europe all the time which can be taken in either positive or negative way. Lets see, Olli Rehn (European Commissioner for Economic and Monetory Affairs) thinks that Greece is 'very close' to the debt deal. He very correctly says that next three days will affect next three years for Europe. In another news, Spain's unemployment rate is now 23%. More than half of Spain's 16 years to 24 years young are unemployed. This is highest in the Industrialized World and this is an Official Figure.

Then, there are rating agencies to add some spice to curry. You can have a look at the S&P Rating of Eurozone countries here. It is funny, these agencies took almost endless time to wake up and realize that the debt issued by many European countries is worthless.

Every now and then we keep hearing about a crucial meeting to solve Eurozone Crisis. Positive statement from Merkel, bad stats from Italy and so on... news keeps flowing, we keep reacting and some influential people somewhere keep making lot of money... (caution: unsubstantiated statement... don't sue me please)

I personally believe in the continuation of World (I don't think World is going to end in 2012... even the movie was bad). What I mean by this is little philosophical and will elaborate more on it in next post...

To be continued...

NIFTY at Cross Roads

Yet another time in last year and quarter, NIFTY is at cross roads. The channel in which NIFTY has been moving is way too long now and a break out is imminent. As the current situation stands, NIFTY is at stone's throw distance above 200 EMA, about 100 point short of upper channel. RSI is at a level not seen since last 16 months and MACD is also showing considerable divergence.

Now, all of this does not mean a damn thing. Markets have a long history of proving predictions less worth than the paper they are written on. We will just see the facts here.

On the positive side, 'Monty', Italy's Prime Minister, is hopeful of a longer lasting solution to Europe Crisis and I want to share his optimism. Next couple of days are extremely crucial and will make or break Europe literally and figuratively. May be a larger post on Europe is called for. Will write one soon.

On the flip side, if anybody of you follow cycle theory, then we are due for a short term bottom in last week of Jan or first week of Feb in American Markets. Also an intermediate degree correction is due in March-April time. Cycles have been known to follow much more predictive behavior and I will not rule out NIFTY following it to start it's journey towards the bottom of the channel.

Before I close this post, few stocks have already broken out of their channel. See one below.

Will write more soon and will write about trades (if I can spot any opportunities) soon.

Europe Crisis

What would happen if Greece was to leave Euro Zone?

This is the question only and only two categories of people are asking... Greeks and non-Greeks.

Well, there are no clear answers but there are many hypothesis available. Before that let's look at the two ways in which it will happen.

First, Greece is forced out of Euro Zone when other European Nations refuse to help it. This will create lots of problems for other smaller and in distress European Nations which may also want out before things go as bad as Greece. This will probably result in collapse of Euro Zone (banking system), end of Euro and probably a real unambiguous recession for the World.

In second scenario, Greece may choose to default and leave the Euro Zone voluntarily. This may be a better option for Euro Zone and it may just save it. In such case (if it happens when there is still time) EFSF will have more leeway to help Italy whose failure can have disastrous consequences across the world. It might just save Euro as a currency and it may actually turn out as stronger one after loosing it's weakest link of Greece.

What will happen to Greece?

There are again two possibilities.

First the bad news... total mayhem. Greece's new (or old) currency will devalue very rapidly. There will be bank runs by depositors to withdraw or transfer their savings in Euro. Because of fast drop in the value of the currency there will be high inflation (could be very high actually). Greece will open up their printing presses to print the money and pay back it's debt. This will also cause shrinkage in the GDP in actual terms. Greece citizens will face the double whammy of negative growth as well as high inflation.

Rest of the World also may not take this lightly and may ban or restrict trade with / investment into Greece. As it is Greece does not have many exporting industries and like many other Euro Nations, its appeal to Tourists is nothing extraordinary within Europe. It's banks will certainly fail and so many other who are exposed to Greek debt. While many will fail, many will be recapitalized by their own Governments, Unlike 2008 World financial freeze, there are ample warnings of these so initial shock will subside quickly and contingency plans (which have been definitely prepared by now) will be put in action.  After some time, World will move on. After how much time... depends on a Zillion factors.

Second scenario... and you have to rewind about a decade. Argentina was faced with a similar situation because it's Peso was pegged to Dollar as 1:1 and it was having huge debt (actually unmanageable) to repay. What they did? They decided to default but they planned it well. When they decided to default, they removed the pegging of Peso and at the same time froze all the bank accounts to prevent bank run (that was about Christmas time... you can imagine). Obviously people took to streets, burnt cars and looted shops and all that. Peso lost it's value and it soon became almost 4 Peso for 1 Dollar. Inflation increased to extremely high levels due to dependency of Argentina on Imports.

However, a week currency also made Argentinian Exports cheaper. Their exports to rest of the World soared and their new Government implemented policies to reduce their dependence on Imports. Over the years, after improvement in situation and creating trade surplus, Argentina started to buy back Dollars bringing Peso rate down. They also reopened negotiations with their debtors and finally paid 25-35% of original debt to clear the dues. There was lot of hue and cry from lenders, many went to arbitration and cases are still on... and Argentina still can't borrow at some places... who cares?

Similar story happening in the Greece is the ideal case for them. A systemic cleansing and disciplined approach with devalued Drachma (Greece's old currency) may make Greek assets very attractive to Investors around the World. Risk will be there but the possibility of good return will make 'not-so-risk-averse' entities reach Greece. Slowly but surely new political set up will find ways to build up GDP and growth will return. Meanwhile lenders will need to be treated taking a clue from Argentina. Obviously some European Banks will need some help from their Governments to stay in business and some will cease to exist. Life will move on after some time... 'Time'... which will be decided by a Zillion factors.

This is totally offbeat post which have been doing rounds in my mind for many days... I feel the possibility of Greece defaulting eventually is very high and that may trigger some scenario. What I wrote here could just be one of them.

Our trade analysis and post for next week will have to wait till Sunday. Would love your comments till then.

Have a great weekend.