iCharts Discussions

[chetan83]

Thanks ST Sir,

Do post the chart, as and when -80% levels is breached and reversal happens

Chetan.

[SwingTrader]

We are now firmly below the long term bearish trendline which is now the key resistance for any move up from here.

On the sentiment front, intermediate term sentiment is nearing its oversold level of -80%. A move up to test the long term bearish trendline is possible. What happens there is the key for any serious future move up. Long term sentiment has taken a serious hit and will now need to decisively break above 0 for any serious sustained/long move up.

I had bought into the rally out of Dec lows quite late as I needed to see long term sentiment fire up. I went long in stocks even tough the rally out of Dec lows was weaker than the rally out of 2008 lows. At that time long term sentiment had shot up above 0 and did not look back. This time long term sentiment initially broke above 0 but promptly fell back and has been struggling all along to go back above 0. This indicated, as I had mentioned before, clear weakness. My longs are hedged as they always are especially in the initial stages of a rally as one cannot ever be sure that a rally will be sustained.

Now some very important information for investors...

Why hedge ?

I totally believe in hedging long term positions. I have been doing this for years now but I hedge selectively based on my market bias. I put on hedges at key points when I think risk of decline is significant.

- Hedging is necessary to protect profits on long term positions that are already profitable.

- Hedging is necessary to maintain or reduce the cost basis of new positions during market declines to make sure our position remains in a state where it can profit quickly and significantly once the market turns up.

Hedging Issues

- Hedging is a double edged sword. It has to be done correctly and at correct points (when there is a significant risk of a decline).

- Hedging can result in actually increasing the cost basis if market just goes sideways for an extended period

- It is a skill that needs to learnt and practiced before one can reap its rewards.

Given the above issues, I still feel hedging is key to invest profitably in the long run. It is a skill that is relatively easier to master for an investor than technical or fundamental analysis.

How to hedge

The best vehicles are stock/index futures and stock/index options. The ideal hedging vehicle are stock options but in India hedging with options is far more difficult due to lack of liquidity. Stock futures can be used but obviously are more risky as a quick/strong move up can result in losses on the hedge side if one is unable to remove the hedge quickly.

Index futures/options can be used by what is known as "beta weighting".

Eventually one has to find their own way to hedge using one or more of the above vehicles. It is an art-science that needs to be developed to suit ones investing personality.

For more info on how to hedge, please refer to the following books which have good information :

Buy and Hedge

Generate Thousands in cash on your stocks before buying or selling them

The first book has good core hedging ideas. The second book has many ideas on how to reduce cost basis of your stocks. The key thing is to take core ideas from these books and not look to implement the exact ideas. Many of these ideas are difficult to implement in the Indian market due to lack of options liquidity or due to options being cash settled instead of stock settled. But the ideas presented as invaluable as one can develop powerful hedging and cost basis reduction strategies using these.

My idea in highlighting hedging was to get you thinking about protecting your long term investments. I go many steps further for my long term portfolio and actively work on reducing the cost basis of my stock positions. This amplifies profits once market turns. Most of this cost basis reduction is possible only when market declines. So for me, market declines are exciting times (sorry to say so). I urge long term investors to spare some time to dig for more info on hedging & cost basis reduction and see how it can turn your long term investing more profitable and your portfolios less volatile.

Good luck!!!

[SwingTrader]

NSE Options Sentiment

I don't use the regular put/call ratio for options. Here is my own overall market sentiment indicator based on options. Sort of twist on the put/call ratio.

*** This indicator is like put/call ratio. If the indicator is at relatively high levels then it indicates too much bearishness which means probable bottom. If the indicator is at relatively low levels then it indicates lot of bullishness which is bearish for the markets and could signal a near-term top.***

I am posting this now because it is indicating a significant bottom at the moment. Now how significant is this bottom I don't know...may be 300 pts upto 5200 or maybe more or maybe just a sideways consolidation and then another wave down. All I see is options are indicating too much bearishness which has to be digested/resolved before we can proceed further down if we have to. NSE intermediate term sentiment too is significantly down so a breather was due anyway. A more significant market bottom seems to be a bit more lower but we have to see how far this particular upmove/consolidation will take us. So let us see....

[DISCLAIMER : What I am posting here is my personal opinion. This information is provided for educational purpose only.]

[rvg]

Thanks

[SwingTrader]

NSE Long term sentiment is down significantly. Intermediate term sentiment had made a low just above -80%, this is a significant low. Intermediate term sentiment can dip to -80% but looking at the options sentiment, there could be a pullback/consolidation before we head down for another dip. Intermediate term sentiment going down to -80% will ultimately indicate a far more significant bottom than what we are currently seeing.

The initial upside level for this pullback is around 5000 where the bearish long-term trendline is. The next upside level is around 5100 where there is fib confluence. The next upside level after that is around 5200 where there is significant price based resistance. On the downside I am looking at 4600-4700 which is a strong support area where we may also see intermediate / long term sentiment extreme.

The next 1-2 weeks - pullback will really begin once we break above 4940 on NF which is short-term resistance. Once this happens the pullback will continue until we see a near-term bottom in options sentiment (current bearishness must come down). Once this happens (I will surely post the chart and indicate this once I see this starting to happen) the pullback could end and we could see another wave down.

Let us take one day at a time and see how it goes...

*** ALL THIS ANALYSIS IS MORE RELEVANT FOR POSITION TRADERS AND LONG-TERM INVESTORS ***


[DISCLAIMER : What I am posting here is my personal opinion. This information is provided for educational purpose only.]

[SwingTrader]

NF turned down from the 1st level I had talked about (long-term bearish trendline). This is indicating the strong dose of bearish sentiment in the current market. NSE long term sentiment too is strongly bearish. NSE options sentiment too is indicating continuing bearishness. Do keep in mind that bottoms form during such strong bearish sentiments. Of course, one has to remember that price is always the king. Whatever indicators we use they are for secondary analysis. Your money is on the line here and movement of price is what will decide the outcome of your trade / investment. Take no outright long positions until price shows strength. Bottom fishing, if done, must be hedged partly or fully.

Do remember that given the all round bearishness, any price strength shown here and the one breaking bearish trendline can result in a sustainable upside move. Until this happens sideways to down move could continue.

Remember price is the ultimate decider, rest is illusion.

*** ALL THIS ANALYSIS IS MORE RELEVANT FOR POSITION TRADERS AND LONG-TERM INVESTORS ***


[DISCLAIMER : What I am posting here is my personal opinion. This information is provided for educational purpose only.]

[pkholla]

ST: Great job. The chain of charts and analyses provided by you is an expert commentary on the trend of the market. Keep it up, Sir. Prakash Holla

[rk_a2003]

I have gone through this whole thread today. After reading all the commentary with sentiment charts we can say If Nifty go above 5400 and stay for a while uptrend will be confirmed or else if nifty come down below 5000 and stay there for a while downtrend is confirmed.

This is being told by technical analysts time and again everywhere. Why should we use the Market sentiment charts to reconfirm the above?! I failed to understand.

Even Nifty did go up above 5400 and stayed there for few day’s still unable to continue the uptrend, being dictated by so many fundamental issues it came down and still going down.(To mention a few… GARR, Rupee slide, GDP descent ….so on)


In contrary….. With fundamental analysis I am able to know that the market bottomed out temporarily around 4500 in December, January and was able to go long and stayed long and booked profits around +30%.( by riding the rally triggered by worldwide liquidity floods infused through easing schemes in US and Europe) and with F.A I know in advance that this rally is not going to sustain and has to go down till another round of pumping of money or till a natural bottom out occurs in Demand,and I expressed this position through several posts well in advance.

The bottom line is we can use FA effectively and also TA for entry exit or to optimize your trades.

“Although technical analysis and fundamental analysis are seen by many as polar opposites - the oil and water of investing - many market participants have experienced great success by combining the two. For example, some fundamental analysts use technical analysis techniques to figure out the best time to enter into an undervalued security. Oftentimes, this situation occurs when the security is severely oversold. By timing entry into a security, the gains on the investment can be greatly improved.”

I suggest everyone to embrace the above approach if they really wanted to benefit from the Stock Market.

[SwingTrader]

[STEPUP]

[STEPUP]

[SwingTrader]

[SwingTrader]

Seriously, I think I need to post a clear warning in our "Economy" section of the forum where so called fundamentals are discussed :

All users are hereby warned that reading the posts in this forum section can seriously harm your health. Users with high blood pressure, heart problems, users on anti-depressant medicine, pregnant women are advised to stay away from these forum topics. After reading these topcis if one experiences chest pain, numbing sensation in the limbs, nightmares, loss of analytical capabilities, serious loss of control of one's portfolio etc then one is advised to immediately rush to technicals and get back to basics that truly work.

I wish someone could post articles about using true fundamentals like the value investing system proposed by Benjamin Graham or ideas of Warren Buffet instead of the doomsday crap.

[aptcap]

ST,

Agree with you. I will try and take up the project of posting on value investing et al but may extend it to styles of others stan druckenmiller etc. who used both FA and TA. With the help of other forum members ofcourse.

I think there is some sort of "crisis fatigue" and maybe there might be blow ups along the way, ultimately all this too shall pass. Unless the world enters a japan-like coma (which also some claim is on the verge of a collapse). Unlikely scenario though.

Rgds

[STEPUP]