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My name is Jai Bala and in this blog you will find my view on financial markets and trading from a chartist's perspective. Im a trader & market technician (MSTA, CFTe) and a very large part of my market knowledge was gained through trading for a living between 2002 and 2008. I have been investing in the markets since 1994, took up trading as a full time pursuit in 2002 and went on to manage portfolios of a few high-net individuals. Between Jul 2008- Jan 2010, I lead the technical strategy for the instituitional broking arm of Reliance Capital, advising hedge funds and other instituitional clients. I'll be covering the Indian markets mainly but will also touch upon other markets including the world indices, commodities, currencies and bonds. Within the Indian markets, my posts will focus on the Nifty index and the equities segment of the market. Through this blog I hope to keep in touch with my friends in the trading community. At the same time, writing and collecting my thoughts helps me stay disciplined and this blog is aimed towards that end.

Warning signs

 Indian Market/Stocks, US Markets, World Markets  Comments Off on Warning signs
Nov 012019
 

S&p 500:

As can be seen from the monthly chart of S&P 500, the momentum for the Index has been dropping precipitously with each new high. (The loss of momentum is pretty much the same on Nasdaq & Dow as well). Under the Elliott Wave Model, I see the move from Dec 2018 as start of the 5th wave for S&P for the bull run that began in 2009. The wave principle states that two of the impulse waves tend towards equality. This is shown in the chart above.

Incidentally, Oct 2019 is 144 months from the high of financial crisis high – a very important Gann number. Invariably, significant highs and low’s get registered from previous peaks and troughs (with a very tiny bit of tolerance on either side of this number)

Other Indices:

The Dow Jones Industrial is yet to clock record high. While it’s not far off  and it may even clock fresh high in the next couple of days, it is lagging. We can even ignore this but:

The Dow Transports and the small cap Russell 2000 (shown in the chart above) indices are over 10% from their record highs.

The famous FANG stocks which have been an important cog in this bull run are all lagging. Google while close to its all time high, failed to cross 1290 for the 3rd time. To clock fresh all time high – Netflix needs 45% +, Amazon 15% and Facebook 14%.

Sentiment:

At the record high of 3050 on the S&P reached couple of days back, the sentiment readings are very elevated. The number of futures traders who were bullish reached 80% (courtesy Daily Sentiment Index).  I’ve seen this reading go to 95% but this is at the extreme zone.

Here is another picture:

As I have shown on the monthly chart of  the S&P,  Wave 1 is right now = Wave 5. A sentiment equality could also be shaping up. In May 2011, Bin Laden was killed by US forces, post that , the S&P dropped 20%. Here just before the 3050 high, Al-Baghdadi has been killed by the US forces. This is once again being hailed as big amelioration of Geo-politcal risks for the market. Will history repeat?

I had spelt some of these thoughts on BQ here:

 Posted by at 4:10 am
Sep 292019
 

Indian equities have had an interesting 6 sessions of trade. The Sensex dropped below the Aug low while the Nifty barely managed to hold above the Aug low.

Chart 1: Nifty vs SensexNifty’s price action of the last week has thrown up a couple of possibilities.

(a) Bull case:  My interpretation that the Index registered a major top in June 2019 was premature. OR

(b) Bear case: A major top is in place and the events of last week simply interrupted the decline.

If we consider (b) as the case, that leaves us with two possibilities. Either the index hasn’t got much upside beyond the 11700-750 ball park or the index is going to fail just under the record high of 12103.

This leaves us with a couple of interpretation under the Elliott Wave model and in both cases, the bounce is a correction. Did the correction start from August low as an irregular correction or did the markets see a ‘truncation’ in September due to an unforeseen event is the question to be answered. (For those who want to get technical under EW, the decline from 12103 ended a five step minor degree A or 1 at the Aug/Sep low and markets are on a corrective minor degree 2 or B)

The important takeaway from this is that we need to be on guard – Indian equities could reverse suddenly without much warning as the upside could be done or very limited.

If we consider the case (a), the reasonable and sensible way to interpret the price action seems to be an ending contracting diagonal under the Elliott Wave model. Under this interpretation, the upsides are a little bit better but doesn’t seem like one should build a big portfolio expecting a multi-year upside. The upsides may not last beyond a few weeks to a few months.

Chart 2: Nifty Weekly 3-3-3-3-3 ending diagonal

Bottom Line: To me, it makes eminent sense to wear a trader’s hat and not an investor’s hat.

 Posted by at 3:38 pm

Buffett’s Gold bashing is misplaced… once again

 Commodities  Comments Off on Buffett’s Gold bashing is misplaced… once again
May 092018
 

At Berkshire Hathaway’s annual meeting 2018 this weekend, Warren Buffett revealed that $10,000 invested in an S&P 500 index fund in 1942 (there were none at the time, he noted) would be worth $51 million today. However, $10,000 invested in Gold would be approximately $400,000. (This is not the first time Mr Buffett has taken a potshot at Gold, he did the same back in 2012 and I had a blog post http://www.cashthechaos.com/blog/2012/02/17/gold-the-buffett-slayer/)

When one is a Billionaire, one can say whatever one wants and try to pass it as wisdom or gospel truth. Let us examine these words of Avuncular Warren a little closer.

First, as Mr Buffett has rightly noted, there were no index funds back in 1942. What is unsaid and absolutely critical is that the first index fund was not around until the 1970’s. So an investor would have needed all the sophistication to track the key stocks by market value, assign/reassign weights, balance/re-balance the portfolio and all that jazz that an index fund or an ETF does these days.  Remember, at its 50th anniversary of formation, the S&P500 had just about 80 odd of the original 500, and the 400+ companies had either gone bankrupt, been taken over or dropped off the index. So for 30 years! Was a normal investor expected to do that? How do you think that would have gone? Marquee Company’s like Sears, Lehman, Radio Shack which were on the index for 50+ years went bust. Bear in mind, that when an investor looses 10% he/she needs 11.2% to break-even, 25% loss needs 33% to break-even and so on.

Second, it is very very important in the present world of QE, to understand what exactly is a Dollar. Only then can one understand the true value of the $51 million Mr Buffett is talking about. For millennia, real money was backed by tangible goods. Gold and Silver served this purpose. We know from history that President Roosevelt in 1933 and President Nixon in 1971 obliterated the US$ from being honest money. So what exactly is a Dollar backed by? Government bonds. Which is nothing but a promise to pay dollars. A promise on a promise and nothing tangible. Does “I promise to pay the bearer a sum of Rupees…” ring a bell? (And the central bankers call Crypto currencies as a scam!! )

What is a Dollar then? The US Congress describes the Dollar as 1/44.22 an ounce of Gold. That is if you pay $44.22 you can get an ounce or 28.35 gms of gold OR 1kg of gold for $1,560!!  Compare that to actual value of 1kg of gold as on date – $ 42,346!!

Now, why don’t someone try taking these fiat dollars to the Treasury or the Fed and try to exchange it for 1kg gold per $1,560? After all these notes are the obligations of the United States of America. You would probably be dispossessed of your money and sent to a mental institution. The dollar had such value once upon a time. Today it has lost somewhere between 85% to 97% of it’s value  – don’t take my word, pull out the data from Federal Reserve and see for yourself. (From the St Louis Federal Reserve, Title: Board of Governors Monetary Base, Not Adjusted for Changes in Reserve Requirements, Series ID: BOGUMBNS, Source: Board of Governors of the Federal Reserve System, Release: H.3 Aggregate Reserves of Depository Institutions and the Monetary Base)

It is exactly this kind of dilution and dishonesty that Gold stands to protect. And it has. An ounce of gold will fetch a fine Louis Vitton or Hugo Boss suit.

Finally, here is a chart of Gold’s performance vs Berkshire Hathway since 2002.

In 2012, gold was crushing the performance of BRK by 420%. Also one can see, Gold is still delivering 70% better returns than BRK since 2002, even after a steep drop from record highs. Buffett’s BRK has completely missed the commodity boom. Hence, maybe he has a reputation guard?

Also, Berkshire has a cash reserve of over $100Bln. This reserve needs to go into something productive otherwise this poses a big problem for Buffett, especially if the dollar is going to loose value in the future.

 

 

 Posted by at 3:35 am
Jun 212011
 

In yesterday’s market action, India’s Nifty breached an important trendline in a convincing fashion. All the corrections since Nov 2009 stopped right at this trend-line (see chart below) and kept the up trend intact.

Nifty breaches a 20 month trend-line

The weight behind this breach was ONGC, which also happened to complete a Head and Shoulders top on its weekly chart.

ONGC completes a head and shoulder pattern

Though Nifty is yet to break the February low of 5177, considering the fresh weakness in top four Nifty stocks (ONGC, Reliance, TCS, Infy), it looks like it would just be a matter of days before this level is violated. Relief rallies if any, are likely to come under pressure between 5400-5485.

Bonds breaking out

 Uncategorized  Comments Off on Bonds breaking out
Jun 292010
 

The chart below is that of  US bond ETF.  The breakout here is quite obvious and significant.

20+ year Treasury Bond fund - Source Bloomberg

Looking at India’s 5yr interest rate swaps – a downward trend seems to have been established.

5year Interest rate swaps - Source Bloomberg

The message is quite straight forward:  investors are seeking the safety of bonds and hence another wave of selling in the equity markets is likely.

 Posted by at 6:49 pm  Tagged with:
Jun 282010
 

As can seen from the chart below, a gravestone Doji formation is visible on Nifty’s weekly chart.

Nifty weekly chart - Source Bloomberg

This pattern is moderately bearish and a follow up selling this week(Friday’s close) that takes Nifty below the low of 5259 would draw in more sellers.  Aggressive strategy would be to sell below the low of last week while a conservative approach would be to wait for this week’s close to see if there is a bearish reiteration. A close above the high of 5366 would nullify the bearish signal.

Jun 132010
 

Here is the chart of India VIX. A reverse head and shoulder seems to be under construction.

What is important to note here is that the pattern formation is taking place after a very low reading on the VIX (read complacency). Once the reading crosses the neckline (35-36 level) a lot more volatility may be on the cards. A chart to keep tabs on.

Trade Idea – 2 Stocks set to make new 52 week highs

 Uncategorized  Comments Off on Trade Idea – 2 Stocks set to make new 52 week highs
Mar 182010
 

Data Courtesy: Bloomberg.
Disclaimer: This is not an investment advice, please seek the advice of a registered investment advisor before putting real money to work.

Charts are for educational purpose only if you would like to know the names of these 2 stocks, please email me.

One more reason to be bullish

 Uncategorized  Comments Off on One more reason to be bullish
Mar 172010
 

The Dow Theory “buy signal” that was in effect from last July, got another reconfirmation today with the Dow Industrials closing above its January high of 10725. With this, all the three Major US Indices(Dow, S&P and Nasdaq) are clocking higher highs and higher lows thereby implying that the primary up trend that began in March 2009 remains in good health.

While markets might pull-back in the near term, today’s move has further increased the odds of Dow Jones Industrial Average scaling 11200. ( I have been holding this view since last July – see my Bloomberg report dated July 24th)