Exit Point

Why do all the trading literature concentrate so much on entering a trade? The successful exit strategy is as important as entry. And that would many a times make the difference between a profitable trade and an unprofitable one.

More on this later, when I finish some of the Technical Analysis books that I have got.

Market View: October 23

Nifty Movements: Nifty lost some of its gains this week, and ended the week a shade below the mark of 5000. However, the market was quite strong, and despite the bad news from the RIL front, managed to close flat on today. Think the market would continue to hold over the short term, and may end the year at a high. Usually, markets do have a tendency of rallying close to the year ends, and if that happens, we may be in for another 10-15% up move from here.
 
Stocks: Telecom stocks have been very weak recently, and they continued to be under-performers. Real Estate also faced sell-off for a couple of days. However, the big under-performer has been RIL – marred in controversy and court battle, and then the Hardy pullout. IT companies surprisingly have held out well in spite of a stronger outlook on INR, though going forward we may see some weakness there. Another sector to watch out for could be the metals, with bad news expected from China.
 

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Next Week Views: The main risk remains the Chinese markets, and if the news coming out of there about the overheated economy and inflation concerns indeed is true, then we may see weak markets. However, there is not much bad news coming out of West at the moment, and if the results continue to surprise, the markets may even accommodate modest bad news from China.
I think we are standing at some sort of an inflection point – there are people who believe markets would reach new highs, and there are people who believe we are in the middle of a ‘W’. And the rational from both the sides seems to make sense. May be, this is the way markets are designed to be – capturing all the present information, and standing well in balance. I haven’t seen a bull-run from a trading floor before, so am not sure how they appear. Were there equal number of skeptics way back in the bull markets of 2003-2007 as well?

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Food for Thought: How do you think the consumption patterns would change in the next 10 years? What would be the next generation consume more, and what they would consume less? I think all the things traditional would be consumed less and less (in value terms adjusted for inflation). And people would consume more and more technology. Just like there has been a great shift in ‘Telecom’ consumption over the last decade, I think people would consume some technology a lot more than what they are consuming now. If I have to put a bet on different industries, this is how I would think:

1. IT wouldn’t remain an industry servicing large brick-mortar corporation. As more and more things start happening online, more and more IT services would be consumed by all organizations. And I would think there would be a drastic shift in the IT-related expenditure for all firms.
2. Telecom would continue its march, and might develop into the biggest industry. Most of the telecom companies would offer all sort of communication services – Television, Media, Broadband, and Telecommunications (they have already started). I think the opportunity here is huge, and we have just hit the tip of the ice-berg. The usage for the communications would increase greatly, and if somehow they manage to replace the credit cards as payment options, then it would be unprecedented. And I see nothing that a credit card offers which a mobile phone can’t do better.
3. Media/Entertainment: This is another industry which I would think would grow. Currently media is not being priced correctly, and most of time people make bundled payments (when paying for all the channels). With selective view-based pricing, and more and more cities coming under the multiplex chain, media revenues make take a quantum leap sometime in the next few years (with multiplexes opening just in the metros, the revenues from movies leapt from 10-20 Cr average to 50-60 Cr average).

Rally Monkey: Still Playing At a Market Near You

Nothing describes the current markets better than the Rally Monkey music. This one has to be played out loud in the office during the market hours (you will need to turn ON the sound on this page).

Disclaimer: The webpage actually has nothing to do with the markets, but all the investors indeed dance to similar tunes :)

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The markets have been correcting for the past few sessions, and daggers are out on the sustainability of the rally. A growing number of people believe that the markets have run up too high, and are long overdue for a correction. Well, I’m not completely bearish even now, and think there are still a couple of legs to the rally. I might be wrong here, and might have to eat my words pretty soon (for October isn’t over yet), but I would still stick to the long view.

Oil is back at $80 levels, Gold is trading at record highs, EUR has gone back to 1.50 levels and Equities are almost at their early or mid-2007 valuations. But China is still 50% down from its peak. The country best placed to avert the crisis, inspite of all the steroid-led growth stories, hasn’t seen too much of a recovery. And even though it makes sense (as China’s growth is led by export to US), I don’t think US would remain with 10% unemployment numbers for a long time. And hence, there is a strong case of rise in Chinese stocks, adding another leg to the global rally.

The underlying rational for all my bullish thoughts is the assumption that US isn’t going to have a lost decade. Japan’s case was different – Yen wasn’t the world’s reserve currency. Here, US is the master of the world – and any holes in its economy would be plugged by Qatar or Singapore or anyone else. There is a strong queue waiting to bailout US, for its the safest asset in the world. And as US comes out of the crisis, the whole world would follow, sooner or later.

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Food for thought: I got an answer to my long puzzling puzzle of why markets tend to go up more often that not. Money Supply growth is quite large compared with the World population growth, and hence, with each passing day, world is getting richer and richer. And there are only two avenues to use this money – consumption or investment. Inflation measures the rise in consumption demand, and rising markets measure the rise in investment demand. And since the marginal propensity to consume goes down as income increases, the rise in investment demand increases more than the inflation. And hence, the world markets are in perpetual bull runs.

Market View – October 5

Oktoberfest has started in Germany, but the Oktobercrash is nowhere in sight. And with each passing day, I’m getting more and more pessimistic about the possibility of it (rather than sounding optimistic, I have tried to use a double negative here).

1. To start with, I don’t see too many companies posting very bad results. Most of the times before the crash happens, the results are really bad (like in 2008) – which though not the final trigger, but atleast contribute to the weak markets. This time around, with the lower expectations, results won’t be ‘exceptionally’ bad for most of the companies. Hence, one of the crucial requirements of a crash is missing.

2. Another factor which shoots down a possibility of a big crash is the fact that rarely have the markets crashed in two consecutive Octobers. Historically, we have had crashes separated by a decade or so (atleast in near history, with 1987 crash, followed by 1997 Asian crisis, and 2007 credit crisis). So, it might be too much to expect a crash in 2009. I would rather put my money on a 2017 crash here :).

3. Last year, there was a great uncertainty in the markets – job markets as well as asset markets. No one seemed to have any clue as to how many banks would go under, or who’s next, or whether one would be left with any jobs at the end of the year or not. There was panic everywhere, and people had put on hold all their investment plans – manifested in the falling property prices, no IPOs, decelerating loan growth, etc. Somehow, this time around, that fear is missing. Property prices have risen by 20-40% in Mumbai, people are no more ‘too’ concerned about their job prospects, and all the asset classes are booming. Somehow, the fear factor seems to be gone.

4. Relentless FII buying in India is in fact making me believe that we may be in for a big rally soon (even from these levels). FIIs have bought stocks worth USD 12-13 Billion this year, and this is inspite of the initial selling in the months of Jan and Feb. To put figure into perspective, in 2007, FII had bought stocks worth USD 17 billion, and in 2008, they sold worth USD 13 Billion. So, the buying this year is almost on a record scale, and won’t be surprised if the locals start jumping in anytime now. Post-diwali, I think there would be a queue of people trying to get into the markets, and that might take it another 10-20% from here.

So, I would stick with my year end estimate of 20,000 on the Sensex. This might sound ridiculous, but then, 2009 as a year has been exactly that.