Fractal Complete - Or close enough for goverment work! :)

Hello Friends and Faithful followers of this Blog,

Almost a month back I posted this message here -

http://theindianmarketblog.blogspot.com/2008/09/fractal-theory-building-case-for-next.html

and here - http://www.vfmdirect.com/forums/show.cgi?topicid=1221160847

Please review above messages/posts before you read this below.

The message said that based on fractals that we were going to have the next leg hard down. Nifty was at around 4300 at the time...Now at 3200...

Booked all shorts b/w 3500 and 3200...Some early...Some late...Overall a fantastic trade - The best I have ever done...Even I was amazed at how the whole thing played to the dot.

Now see the latest chart posted above. Nifty log. 
I have also added some comments on the chart.

To me it looks like the risk-reward has shifted to the long side and we should buy the dips going forward...We might get a retest of the lows in order to complete the wave structure but its not necessary. 

I bought heavily yesterday at around 3200...If you did not buy, dont worry, good chance we will retest the lows again...Else just buy the dips...The move up could be fast and furious..but should be profitable nevertheless...

One thing to note here - something I have always said...Dont use insane leverage...You will be wiped out...Trade safe..

Now wave structure I am not sure...If we have completed the BIG wave A down and the corrective multimonth B wave rally is going to start? OR if we have one more downleg in a month or so to complete the big A wave...

Maybe in a later post, if all are interested, I will post a couple of EW possibilities with charts. This fractal call turned out to be pure GOLD for me...And hope some others also benefitted...The whole time this was running, you just had to look at the charts I had posted earlier and note the pure symmetry of the both the waves...Its really a thing of great beauty :)

Trade Safe.

Best.

Buy!

Today may bring a 10% circuit down or maybe even more....I will be buying agressively today...Just a quick update...Not going to advice everyone to buy as more pain can come but odds are that decline completes today and we embark on a multimonth rally...As I have been saying in past posts...Buying without leverage...Or very small leverage will be safe..And add as we go up only...Today 3350, 3200 and 3150 is important...Below this 2960-3000 range. I dont expect below this...

Trade Safe..

Best.

Market Update

A quick one chart update from my side on where I think we are and where we are going...

First refer my fractal post made almost a month back -

http://theindianmarketblog.blogspot.com/2008/09/fractal-theory-building-case-for-next.html

And here my latest updates and thoughts on this chart...A follow up to above post...

Interesting times we are living in...

I will post a more detailed analysis tomorrow after watching todays action.

EDIT: Just to be clear here - I expect 4-5 days of upmove starting today maybe to the 4000 area and from there we should come back down to test the 3500-3600 area again...Possibly up to the 3300-3200 area BUT this will be a fantastic opportunity to buy some longer term positions...I will post follow ups tomorrow and also in a few days...

For now covered all shorts and flipped long...Very short term trade ONLY.

Best.

OH WOW!

US markets today...Man thats a crash...Biggest decline in a day that I have ever seen....Biggest since 1987....

Everyone ready for a 20% down day today? :-)

Its very likely unless some massive governtment intervention comes in. I think my longer term targets will get achieved very soon.

Dont miss the charts and TA below. When I did below analysis today early morning, I had no idea US markets would crash today...Man what a move! Almost like our own markets :)

PLS do not be in a hurry to bottom pick/knife catch. There will be lots of time. We are in panic mode now...Let the market find its bottom.

Best.

Charts and Updates

After a long time I am finally getting an opportunity to put up some charts and detailed analysis. Its some busy and crazy times for me what with the hurricane and internet being down...Well things are kinda back to normal now and I am back in business. 

I got a lot of emails from readers of this blog asking why no charts..Well reason is above as I did post several times over here...Thank you all for your wishes and concerns at this time...!

Now to the markets. 

If you remember my fractal post, I had clearly said we will get something like this coming...I did turn short term bullish in between which turned out to be a dud as it did not bounce as much as I expected and I would have been better off just holding shorts...Unfortunately market has been very volatile and whipsaw-y nowadays that its been tough to time short term trades...My thought is avoid trying to catch the knife either way...Wait for bounces to short seems to be the wiser thing to do...Unless you want to take a sizable drawdown.

Okay lets look at the hourly chart here. Some things I have pointed out on the chart. You can also compare with the earlier move we had similar to this(see fractal post) and it should give some ideas on how this can go now...

Next the daily. I have market the possible move happening here over the next couple of weeks. I expect a very very important bottom to be set here in October itself maybe...Maybe around 3200-2900 range. We should then embark on a major multimonth rally...But these are based on waves so we will revisit this in another post in a few days. Also note in this chart, note the macd and stochastics clearly showing the downtrending nature of this move. 

If I were to guess, I would say the market continues the decline, makes a low around 3600 and then moves upward to test the 3800 line again setting up a perfect short before we go down to much lower targets as shown in chart below.

Next the daily log chart...

Note how clearly we are within the doomsday channel as I had dubbed this before...We should move toward the bottom of the channel soon...

Finally the weekly. Nothing much to say except both macd and stoch on weekly also on sell...Watch for the stochastics turn back up on weekly to signify a longer term bottom. This is what I will be watching for.

I am really amazed at how well my fractal post worked from a couple of weeks back! Enjoy :)

Comments welcome.

Best.

Not looking good

Charts will follow in the post after this.

For a few days I was entertaining a bullish notion...I was wrong about short term..Looks like longer term bearishness has taken stronger hold and we are going to make a very important low. Where I do not know...But I think odds of breaking 3800 are very high this time. I know of very few situations where a support is being tested for a 3rd time and surviving...So it should break and we should test 3600 and lower. We will visit that when we get there. After making this low, we should embark on a strong multi-month rally...(the bigger B wave - will explain more with charts)

I got stopped out of all longs and am now looking for an area to short. But it situations like this, its dangerous to chase an entry...Maybe just sit out for now.

Best.

Low Volume Declines

The past 2 days moves lower...both here and in US..have been on low volumes which makes me very cautiously bullish...Now again only for a bounce upward where I plan to get short again...Now dont trade for few days if you are risk averse because nowadays markets are moving on news alone and things are quite volatile and dangerous. If you dont manage risk properly, a trader can have his head handed over to him. Be careful out there...Its a jungle!

Some UPSIDE and then MAJOR DOWNSIDE...My Outlook for Now...!

Lets see :)  

Best.

PS: Long time since I put up charts I know...But will do so before or on this weekend.

Update for the Week

Hello All, Well after the outrage over last weeks events and everything else, I settled  back and looked over things and reflected, analysed, and reached more saner areas in my thought process....Most of the time, a position can cloud your judgement and ofcourse this will impact your ability to make money...always..We need to be of clear mind to keep making money..consistently.

Trading is not about trading systems...its more about the mind..and good money/risk management techniques..Now dont get me wrong...TA and systems are important...though not as much as we think them to be or how much people make them out to be...

Okay..Now coming to the markets....We are gonna have some decline today for sure..I will look to cover them shorts I already have which I took from 4250 area as I had updated in previous posts and go flat...And from there I might try some very small nifty longs...Very small coz I am not confident on them and since recently bearish positions have worked better for me than bullish ones..but still might try some small longs for a bounceback....Dont get me wrong...I am still bearish but near term some bounces can come..Maybe to the 4400 or 4450 area.........

Charts and EWT structures..I am still reviewing this...Watch for them in following posts.

Comments welcome...Are you bullish or bearish on our markets? Please comment!

Best.

Sheer Stupidity

Surprised by my post title? I will explain. You all might have noticed the sheer volatility today in the markets. Intervention after intervention by the authorities and the governtment - Insane volatility in the markets. The DOW acted like our own markets...LOL..First time I have seen anything like it..

The latest from the authorities, they are gonna ban all short selling..Ofcourse this is not yet confirmed BUT its amazing...Any fool in the market knows that we NEED shorts for the market to run...Thats how efficiency is built in and that is how short covering rallies come up - It lends a bottom to the market!...Remove that and what do you have? You kill half of the market turnover and also open up a HUGE HUGE crash possibility. Why? Because the FLOOR in the market is removed!...No shorts mean NO floor..!..I hope I am making sense. I said in past couple of posts we are entering into unprecendented times...This is the demise of capitalism..Pure and Simple.

Okay now that I have vented....The markets, I am glad I went flat yesterday night..I see this as another good opportunity to build some shorts...I am looking to short today at 4250 levels with hedges in option calls so I can cash out if this volatility continues. I will continue to add shorts next few days as I think we will top out in 1-2 days. Now this is just my gut feel and also based on the wave structure as I see it...I still do not have my charting service back together so no charts...But you got the idea. Dont get carried away today by all the bullishness.

Best.

SQUEEZE

Well the short squeeze from hell came in giving bears a nightmare - me included. I got out of all shorts yesterday when it became apparent we are not going to break down..I gave back around 70 points of my profit in the process but well still a very very good profit in my positions.

Yesterday was a concerted effort by all central banks to pump up the markets. See how Hangseng and China which were in blood recovered toward the close. See the news below -

Sept. 18 (Bloomberg) -- The cost of protecting corporate bonds from default fell after the Federal Reserve, Europe's biggest central banks and the Bank of Japan said they are taking coordinated action to ease tensions in financial markets.

Credit-default swaps on the Markit iTraxx Financial index of 25 European banks and insurers fell 15 basis points to 135 and the subordinated index dropped 30 to 265, according to JPMorgan Chase & Co. prices at 8:15 a.m. in London. The Markit iTraxx Europe index of 125 companies with investment-grade ratings declined 10 basis points to 135.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a company fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline signals the opposite.

AND NOW - WHAT NEXT
The bounce should continue for few more days. Maybe into beginning of next week. I will look to build shorts again at around 4100-4160 levels all the way up to 4220. Above this means we will try to grind up higher but I doubt it will....Let us see. Market is all about taking risks to make the big bucks. Yesterday if I was conservative, I would have made much more but I took a risk expecting more - When the market told me to get out, I did. Still did not go long because in this environment, we just do not know what will happen overnight. As I said before, we are in unprecendented times - No one knows what next. We can just take calculated guesses based on TA and trade that. The market tells us if wrong. I am looking forward to building the next short position.

Btw - Did anyone see GOLD yesterday?...I am sitting on good profits on my investment long position. Enjoy!

Best.

Selling Climax

To me it looks like we are finally entering into the selling climax of this leg down. This might be later today or early tomorrow. My heart goes out to those who tried to bottom pick and go long in this market but my warnings and messages were very clear.

Anyone who shorted with me at 4350 with me reading this? If so, leave a comment - I enjoy reading accounts of ppl who benefitted from my analysis and calls.

What next? Its very difficult to say - The events happening today are truly unprecedented - I am amazed at the way our markets are holding so far. I want to see a limit down day or two to feel more comfortable on the long side. Having said that, I also think that we are close to a selling climax. Will it happen today? I am not sure but there are good odds that it might. If so, I will look to close shorts in futures and buy some crash puts just in case we crash tomorrow. Overall I feel this is not a time to bottom pick. I amazed at the calls going around past 2 days advising ppl to bottom pick - Today they have their heads handed over to them. The credit market crisis or a bear market of this intensity is not something any one of us has seen. Why try to guess where the bottom is? To go long, the market will tell us when its time. And I will surely post here. A bounce is coming soon. I am not sure yet from which level but let us see.

Best.

One more Update

Well folks...Whoever shorted on my call and charts have made a fortune now as have I...Today might be a good day to take profits...atleast some profits...but be ready to short at higher levels again because we are still far from the bottom...Today lets see if 3950 holds..If not, we go down to 3800 area which should hold...Below this next strong support area is 3600-3550 area. But we will not go down in a straight line...

Now pls note above is for nimble players...If you dont want to trade in and out...Then just hold shorts with trailing stops...Based on your risk appetites...This is what I will be doing...Holding shorts until I see more reasons for a bottom...

Best.

PS: There was a query in earlier comments on how to learn EWT - Well its a tough question as there is no easy way. EWT is a very tough form of analysis because it all depends on a persons perspective...Again we need to use indicators to confirm wave analysis. EWT is best learnt thru sites like this and the rest is ONLY thru experience. Try other forms on analysis first and observe how waves unfold before using them solely...And ofcourse follow this site and Vivek Patils EWT analysis on ICICIDirect.

Some books on EWT can be found here - http://www.esnips.com/_t_/elliot+wave?q=elliot+wave

I honestly dont have an opinion on which one is good since I have never fully read an EWT book that is easy to understand.

Quick Update

Well I was not able to follow up on my latest post...Since of Hurricane IKE in Texas..Donno if anyone saw the news on this but things were quite bad over here...No Net..No Water...No Power..No nothing at home..hehe....out at a friends house to check things... Well I am still of same view...Msg posted few days back when nifty was around 4350....still of same view..I think first bottom will come at around 2 months or so from now....Not sure on time yet but with respect to levels, expecting 3600 first, 3200 second and finally 2960...not more than that at present because of some VERY VERY important support lines...But we can reevaluate when we get there....I am not going to post an updated chart here coz of the reasons I updated above...Its tough times...And I dont have much time...So thats it... All the best to all... Best.

Fractal Theory - Building the case for the next leg down

In my last post over here, I mentioned that I am exiting all long positions and sitting on the sidelines with small shorts until I see more evidence for some more rally OR 4522 being taken out on the upside. From then the market has clearly deteriorated. I hope some people reading over here would have been saved from all long positions even if you did not take any shorts. 

Yesterday I was looking at my EOD chart for hours and some things jumped out at me...I mean it was visible before too but after yesterdays study, I am really confident on what I see...Its clear that we have started the next leg down. I will present my ideas in the chart and writeup below this but before that, let me present something known as 'Fractals' and what it means. 

"A fractal is generally "a rough or fragmented geometric shape that can be split into parts, each of which is (at least approximately) a reduced-size copy of the whole,"[1] a property called self-similarity. The term was coined by Benoît Mandelbrot in 1975 and was derived from the Latin fractus meaning "broken" or "fractured."

More on fractals can be read here - http://en.wikipedia.org/wiki/Fractal

Elliot wave theory is built on the fractal wave theory - essentially what it means is that similar structure keep occuring in the market, in nature and well everywhere...Its a great mystery of nature as to why this happens. I believe other theories such as Kondrateiff also have their base in fractals. Fractals are recursive. Means the same structure repeats over and over again...They can be different on a whole but there will be so many similarities and when we can spot these, it builds up a high probability trade AND you also know when it gets invalidated. Fractals are why you have similar bull and bear wave structures in the market. Google more on fractals and you will be amazed at what you find...Fibo ratios also play a very important role in fractals and in effect EWT. 

Okay now coming to the chart. See below chart...I have added a good deal of comments on it. 

Now same fractal iterations as in above chart, can also be explained in EWT terms but you already know my count ABC-X-ABC where the final C might have just started. We have a very high probability of a big sell off coming. I knew it was coming. Only question was of WHEN? 

The other interesting thing is, back in May when the last fall happened also, a lot of market participants were bullish and confused expecting one last wave up. I was also one of them. It never happened. Almost similar today. Several folks including me expected one last burst up to 4650 and 4750...Might never happen. Areas to watch now are clear - 4200 and 4160 on downside and 4450 area on upside. 

Today inflation is 'GOOD' lol...If IIP is also 'good', pray for a rally to get out of any remaining longs and start piling on shorts....If we get a rally to 4400 area again, its a God given gift to get short.

Comments welcome please. Sometimes I feel like I am the only visitor to this site. Please post and offer your views also.

Best.

Confusion!

Confused on market direction in near term so I booked all longs today..Yesterday would have been ideal but greed and stupid ICICIDirect got the better of me...Well booked all today and started some small shorts right now with hedges also in place...A move above 4522 will get me out of shorts...Till then leaning slightly bearish...Yest moves made me bearish since we could not sustain above 4522-4540..I can explain the importance of this area later....But still overall damn confused on market...And when confused, better sit out or trade very small with tight stops...

Best.

US Markets EWT Counts

Chart is self explanatory. Expect our market also to follow something similar.

Best.

Market Psychology

A nice writeup from a fellow blogger...Read it even though its long...A good insightful post

PS: dont miss weekly analysis post below this!

As a trader I have always been fascinated by market psychology. By its definition the process of ‘price discovery’ is intrinsically a large experiment in human emotion which is driven by greed and fear. Although the former is what brings people to the market in the first place, in 9 of 10 cases it is the latter that proves to be the basis of their financial demise. As Peter Lynch put it: “The real key to making money in stocks is not to get scared out of them.”

Of course things change profoundly when you find yourself in an ensuing bear market - but in a way things remain exactly the same. Only that the dynamics now switch into reverse, in that the ‘upside’ is the continuous slide down and that the ‘downside’ are the various episodes of corrective bull rallies. Nevertheless, many investors seem to have a psychological barrier towards ’shorting’ stock and it is probably fair to say that an overwhelming majority have never shortened a single stock in their life. After all, it is a bit ‘unnatural’ for Joe/Jane Sixpack to grasp the concept of selling something now just to buy it back later, hopefully at a lower price. I have tried to explain this idea to some of my friends and most of the time they just give me a polite smile and hastily proceed to change the topic of conversation. As I enjoy getting invited back (especially since the food is free and the women are hot) I don’t press the issue. And finally, as I am an evil speculator I am aware of the fact that for every penny I wrest out of the market someone else out there has to lose it. It’s a zero sum game, no matter what anyone tells you.

The other aspect of investors losing money in a bear (and also bull) market is that they fall prey to their own cognitive biases. Let me suggest a few of my favorites - you can find the full list in Curtis Faith’s ‘Way Of The Turtle’ - a most excellent read:

• Loss Aversion - The tendency for people to have a strong preference for avoiding losses over acquiring gains.
• Sunk Cost Effect - The tendency to treat money that has already been committed or spent as more valuable than money that may be spent in the future.
• Recency Bias - The tendency to weigh recent data or experience more than earlier data or experience.
• Bandwagon Effect - The tendency to believe things because many other people believe them.
• Low of Small Numbers - The tendency to draw unjustified conclusions from too little information.

I guess you get the picture - people often (if not most of the time) make decisions which are driven by human emotion, not by rational analysis. The natural instincts of our deeply ingrained reptilian brain might be well equipped to staving off natural enemies and surviving a cold winter, but are completely orthogonal to the skills needed in making money in the market. Yes, we all like to believe that we are stone cold traders who can press the buy button when our instincts scream at us to start selling everything now! But evidence points quite to the contrary - most traders fail because they sooner or later fall prey to their own fears. Of course there is a good portion of people who have a trading system without a statistically reliable edge or have no trading system at all, but this is not today’s topic.

Reducing the ‘Noise’

The Internet and modern information technology as a whole has given small time investors/traders access to a wealth of data and tools that was reserved to a wealthy elite just a decade ago. I should know - I was there and remember paying top Dollar for a trading platform that does not even come close to what I am now able to enjoy for free today. On top of that I am able to access a vast amount of information and news at the push of a button, right from the convenience of my home. I can also watch financial networks covering the market pretty much 24×7 (not that I personally ever do, but it’s there). For the fundamental trader I can only guess that this is pure heaven, however for the technical trend trader (yours truly) all that data in some ways may be more of a curse than a blessing. You see, the human brain is not very good at absorbing vast amounts of information. We are good at averaging - some call that ‘fuzzy logic’, and most of us are very visual. Which is why man traders eventually embrace technical analysis. As the thinking goes - all that vast amount of fundamental data which we could not possibly hope to digest is simply reflected by one main denominator, the actual market price of the underlying equity or commodity as depicted by a price chart (remember, I was talking about ‘price discovery’ at the beginning). Add to that some time tested chart patterns like ‘triangles’, ‘head and shoulder formation’, ‘double tops/bottoms’, etc. and you’d think that trading should actually be fairly easy, right?

Well, as you probably have learned from the tribulations of life as a trader - the answer is no. We just can help ourselves it seems and sometimes - and I actually dare to say most of the times - the majority of us are unable to see the forest for the trees.

Weekly Trends

Late on my posting for the week since I had some problems over the week...An accident...Luckily nothing happened to me but my car...well thats a different story...But well thats life and it happens...

Anyways, coming to the market, I should have updated on Thursday but due to problems above could not...I turned slowly bullish on the day as the market was holding onto support levels quite strongly and as I said before US markets were quite ugly at the time...We opened ugly too but still bears were not able to break support even with all the global support..Slowly I turned bullish and started buying with tight stops...Happy I did so..!

Lets look at the news front..We have 2 major market moving news that came out over the weekend...One is global and the other is local...Not so sure which one is more important but together it should give a big big boost to our markets in the short term...We still need to see and review what this will do in the longer term...

The Global News - Well if you didnt hear it by now, Friday after market hours, the US govt. made public the plan to nationalize/support the 'deep in trouble' Fannie and Freddie...This is a very bullish thing to the markets esp financials due to the amount of paper being held by all the different banks...Longer term..Well makes no difference..Infact its very bad as in essence capitalism is losing and something different is happening in the US of A. I would say we live in unprecendented times...The other most obvious bad thing is that USA goes more into debt worsening an already bad situation.

The Local News - Sure everyone knows this..The NUKE deal finally falling thru and it looks like we have a better deal now...Quite bullish.

SO. A gap up is almost guarranteed..If not long, look to buy pullbacks...Dont rush in and buy..Lets see how the markets react at supports and resistances...Since I am already long from Friday, I will sit tight...

Now to the charts...

First the daily...Comments on the chart and nothing more to say here.

Heres the log of the daily. Very interesting...Again nothing more to add here except for the comments on the chart..Open in new window to view.

The weekly....Note here how the MACD is now a clear buy...But note that this is quite lagging to be careful following this except for longer term cash investments. Stochastics is quite neutral right now...Need to see this week to understand more on what will happen next.

Overall the charts and news are quite bullish for this week. But longer term, we remain bearish...Short term and maybe medium term(1-2 months?)...We can turn bullish...Watch out for more bullishness coming from the new channels and public...This will be our signal to be more careful...For now, things start to look rosy again...But dont be fooled into longer term investments...This is still an upward correction to all the downmoves we had so far.

Best.

What Next?

No charts today...I am not sure yet of market direction...BUT I will look to exit longs today at some good profits...Only because I dont want to let these profits go..We will see what the market does near 4540 and 4620 if we do get there...

I was quite bullish after our market action on the last trading day but after watching the US market for past 2 days, I dont like it at all...Does not look good at all...Sure our market can still rally but to me it makes sense to take profits here and now if you're long with me...

I might also try some small shorts today but remember that its quite risky because of the strong momentum we saw before...We should know within the next 2 days whether it was the real thing....Till then the best thing might be to just sit out...Or if you are gutsy try some day trades...

Best.

Howz that!...Back with a Bang

What a rally...whew!....How was my call guys for short term bullishness? :)

Next tgt is 4620 area..(4540 still needs to be taken but I think it will)...If we sustain above this, 4750 comes after that....BUT one step at a time...Read my 'morph' post for more details on what to come next....More charts and analysis later...

I got almost best levels to cover shorts and go long...Hope my readers did the same with me...
If my past 2 posts helped you keep out of trouble and also made some money, pls comment here!...I appreciate appreciation...lol :) ...

Have a good trading holiday!

Best.