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Commentary

Of Crashes And Travels

I’ve been involved in moving to Mumbai – so no posts for the last few days. Today I am in Hubli, and preparing for tomorrow’s drive to Pune with my wife and 11 month old Varun. And I see that the market has crashed BIG time, and with my reliable Reliance Data Card I see how much I’ve lost (and gained!)

This looks pretty bad – Nifty at 5700, down from the 6300 levels just a few days back on Jan 8. A fall of 600 points in about 10 days, most of which happened in about three trading sessions.

I’ve maintained that the market has been overheated for the last three months – in fact I sold nearly all of my short-mid-term holdings in November, when the Index was around this level (5700 types). Still, this momentum was driven largely by retail and could have taken us anywhere, but it seems to have run out of steam now.

Is this the end? Will the index go down further or go back to earlier highs? I’ll be honest: I don’t know. It’s going down, the primary trend is down, and I would follow the trend. There may be pullbacks – bear market rallys are sharp and fast – which can seem to be an uptrend again. Don’t fall for it – I would use it as a place to get out at potentially lower losses on long trades.

My trades: My trailing stops have been triggered – Reliance for one (which I need to get out once I’m settled in Mumbai), Canara Bank (which I’m out of now) and some others, though I’m sticking with Pharma for now. The NiftyBEES which I hold is dangerously close to my exit point too.

I had also bought some 5800 puts (for Rs. 60) when the index was at 6200. Those seem to have helped – they are currently priced at 209+. I might choose to get out of them but only on a trend reversal. I have some short positions in ICICI which are doing quite well, and some more in the Mini Nifty contracts which is good because I can get out 20 at a time rather than 50 at a time. I’ve pretty much offset any long position losses against my short contracts.

If you asked me, I would simply say sell now. But I’ve been known to be wrong, so don’t take my advise at face value. The warning signs are out there, and things are ominous.

  • சாமான்யன் Siva(stocksiva.blogspot.com) says:

    >Thanks

  • kram says:

    >Deepak:
    I have been bearish on the Indian market for nearly 18 months. But markets always trend longer than you estimate.

    You may have done well with the Puts. But your claim of Primary Trend being bearish? Where did that come from? Even the DOW has not given confirmed signals of Primary downtrend. And definitely not the Sensex or Nifty. The charts show higher highs and higher lows.

    The 200 EMA is in the 17500 area now. We have crossed the 50 EMA sharply but only for a day. If we bounce back on Monday this test would have failed. If we continue downwards, we will test the 200 EMA in the 17500-600 area.

    Remember, if this support succeeds (and I believe it will since market has not been yet broadly gripped by fear and majority believe that our economy is de-coupled from the US; which I strongly disbelieve), there will be yet another rally to test the previous high.

    You may have been lucky timing the Puts. But count your blessings and book profits as you go :).

    The time to be bearish is still some time away. Be careful. and be trend-neutral around 17500 till a firm short-term trend is established.

  • Ravi Sankar says:

    >Hi deepak,
    I have invested a bit huge amount in biggies like BHEL, LNT, SBI, PowerGrid..before the recent crash.. do you think i have to exit and enter again.. or do you want to ignore this correction.. I have been waiting for the correction and because of my lack of patience i entered.. no regerts now.. So can please throw some light what to do now

  • Deepak Shenoy says:

    >Kram: Trend moved to bearish in the short term because of a) bollinger bands – the index closed BELOW the short term band (20,2) which is a technical sign of bearishness. The 50 DMA was breached, and MACD, a trailing indicator, is just at the sell zone (not yet bearish though). Broad and Narrow trend lines have been broken (and stayed so on Friday) which is another danger sign. Some mid-term market data – FIIs are selling in hordes and results are not exactly matching up to P/E.

    Still, a rally now can be intense and take you back up to nearabout back to the highs, which is a good time to sell and cover and all that. I think I’ll book profits only if the rally happens this week, otherwise it will likely stay down.

    ravi: My advise is to sell, and if you can wait for a rally do so for a couple weeks, for them to come back to higher prices. At least move out of Powergrid and BHEL, they seem to be really weak; I won’t recommend SBI right now, and L&T is weak below 4000.

  • kram says:

    >Deepak:
    So that was the point of difference.

    Since you had mentioned that the “Primary” trend was bearish (and Primary is commonly meant to indicate long-term; while intermediate means mid-term and so on), I was a little puzzled. 2nd order idicators like MACD, Bollinger, RSI, etc can be quite misleading in the short-term at times since their oversold and overbought indications can prolong forever. Using these to trade time-sensitive instruments like Options can burn people.

    Anyways, luck is on my side as the index has further crashed as I type (its 725 points down) as I had mentioned.

    I reiterate. Around 17500 there is likely to be consolidation (may even decline a little more than that). Unlike previous declines and rapid bounce-backs, this time around the consolidation may take a while for the bulls to recover from their deep wounds as well as for the US market situation to be forgotten at least for the short-term. Consider mid-term options (Feb settlement). Unfortunately far-term is quite dead and hopefully these will start trading in the near future.