Experts? Or beginners?

I often wonder why investors and traders act so foolishly when it comes to making money from stock market.

1. They don't want to LEARN.

2. They still have the same age old idea: stock market is for speculation and it is just another form of gambling.

But can't blame them alone too. Learn from whom? Everybody these days claim to be an expert. Problem is, people will also not question whether the advisor is suitably QUALIFIED to provide advice. I have had so many learners having CA, CFA and even a few with MBA qualifications. But these qualifications don't make a stock market analyst. Specially if it comes to Intraday trading.

B they have been in the market for several years, some people consider them know-all, ignoring the fact that they have no formal structured learning of stock market operations and/or analysis. All they have picked up are from people who are similarly unqualified but more vocal.

And listening to the so called experts on TV leaves one with more confusion. They are evasive and always have two answers to every question: from economic conditions to individual stock price movements. Even rudimentary knowledge and regular reading of newspapers/watching business channels allow us that much understanding. Then why need an expert?

The other day at Goa, I was at a seminar organised by one gentleman from Pune on stock market technical analysis. At one point, he exclaimed that he had no idea why Nifty's recovery was capped at 4650. "It must be operators," he observed.

As I had been asking too many questions and disputing him on many points during his presentation, I felt actually embarrassed to point out to him that he had no idea of technical analysis. With some 50 odd people listening to him that would be a grave insult. So I kept mum. Incidentally, the gentleman had organised the seminar to sign-up participants for his technical analysis course next week for Rs 4,000. What would these people learn? Some textbook stuff that are anyway available freely on the Net.

As I charge Rs 12,000 for 3 days and Rs 17,500 for 6 days; that too for teaching a fraction of technical analysis, I don't really have anything to complain about. But then, my PRISM Intraday trading system ACTUALLY helps people make money in intraday trading. Learning technical analysis, per se, is worthless, especially for intraday trading. It doesn't work consistently. While 50% of the indicators signal a BUY, other 50% would signal a SELL.

For more about it, see www.DaytradingFunda.com

Anyway, let me now tell you why it fell back from 4650.

According to my retracement theory (slightly differs from textbook) I teach my trainees, price has to correct minimum of 50% of a rise or a fall. (What happens if it doesn't is another matter that only my paid learners will learn.)

See the chart. It is so apparent.

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(Nifty Future levels) Nifty fell from 5271 to 3673, 1573, a fall of 1508 points. The bounce back had to be minimum 50% or 754 points. From 3763, that would give a target of 4517, which Nifty promptly reached.

Also, look at the next chart and see why price fell from 4650 level. Earlier, when Nifty was falling from 5270 level, there was a sharp sell off from 4650. See how fast and rapid the fall was, just as a cascading waterfall (you can label this fall as such). As such, when price came back again at that level, the sellers were back in action once more, pushing down Nifty once again.


Click to view bigger

In techincal terms, it is called a double top and is highly bearish in nature.

Incidentally, this level is also 50% of the retracement of Nifty's fall from 5553 on 4 February'08.

What is my reading of the present situation? I am inherently very bullish and have been maintaining that Nifty will scale back very soon. Time scale can be difficult to predict as whole lot of factors are influencing Nifty movements. But looking at some other indicators, my opinion is that there will be a mild recovery but not enough to take out 4650 in the next month or so.

Technically speaking, unless Nifty can pass 4660 on the upside, no upmove will be sustainable. Immediately, 4400 has to be crossed for a bounce back towards 4650 but next week, if the upmove comes, the strength will decide whether Nifty can breach 4660. Downside: below 4160 will push Nifty back towards 3960, breaking of which will lead to a new low.

Predicting up-move in a bear market is fraught with risk but I will guarantee that if Nifty breaks 4650 in September, it will be reaching 5500. Very very rapidly.

But remember, technical analysis is just a tool. It doesn't control the market. Market is moved by collective sentiments of the players. And sentiments are easily affected by news and events.
I will now try to be regular in updating my blog so do come back to see new posts. There is option here to allow you to be informed on new posting by me.

Arunangshu M Lahiri