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FIIs sell out and Systems Rule The Roost


FIIs are selling out big time. For 2008, the figure is an astounding 19,000 cr. with 5,000 crore exiting in may, and 4,000 cr. in the first nine days of June.

Is this profit booking? Lehman Brothers today announced that they would raise $6 billion in capital, and will likely have a $3bn loss. Lehman brothers has huge investments in India and is likely to be liquidating them enough to show a profit. And worse, others are probably pre-empting LB sales and trying to sell too, causing some panic.

Or is this an expected move? I have been bearish on the market and now my suspicions seem to be coming true. As of today the EPS growth of the Nifty is less than 12%, for a P/E, even now, of 18+. If were to have a P/E of 12, we’d get to the 3100 levels on the nifty – a further 30% drop from today (4500).

But this may not happen suddenly. Slow torture is what it looks like. Even shorting traders will find the going tough – bear market rallies are very very severe.

I’ve moved completely away from discretionary trading to a very system oriented approach. One system I use told me to be short since 4900 (friday before last, or the 30th of May) and I have been so. I booked profits today as it had reached a level where I couldn’t squeeze it any more. Regardless of what the situation is, I will let my system tell me what to do – and in the process we’re researching more systems. This is very tension free. When you trade, you don’t think. When you think, you don’t trade – you test.

In the current situation, the system’s done about 4 trades since May 15, and given me a profit of around 8% already (post brokerage and all that). That is consistent with this year’s set – from Jan to May it had returned 60%. I’m not going to reveal the system here – for obvious reasons – but suffice it to say that there are enough such systems that can be built, tested and traded. We have two, we are researching some more. The fantastic thing is: when we eventually have this thing set up we will probably need to trade only two hours a day, and we will even try to make that an automated process. Then it’s either research or holiday. I hope it’s the latter 🙂


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