Nov 192008

Today’s headlines read the Bank of England were considering whether BPthey should cut the base rates by more than two points on November 6, but settled for a 1.5% cut so that they would have room to cut later on, and bolster confidence. Why is the Pound gaining ground (even if only limited ground) when faced with the prospect of further rate cuts? Obviously, it is all a matter of supply and demand at any point in time. For example, today Merrill Lynch has been mentioned as big buyers of Sterling related to Middle East investment into Barclays! Another rumor is MLL has an option payout if Sterling is above 1.5100 at ECB fix today. Bear in mind that these are only market rumors, and frequently, rumors are floated by interested parties. Being traders with limited resources, most of us should wait for low risk entry levels and position with the major trend. The trend for Sterling is still down. I see significant resistance around 1.5220 and so will be trying a small short if and when we get to near 1.5210 in the next 24 hours. If we don’t get here by tomorrow, I will forget this idea and move on! Take a look at the accompanying Sterling chart. As usual, I have drawn some Fibonacci retracements, but the key is really Elliot Wave Analysis, and Wave Analysis is more than drawing Fibonacci retracements! Enjoy.

Nov 192008

On October 21, soon after we saw calls for the Indian Rupee at 57 to a dollar, I suggested we could be heading the opposite direction, towards 45.25. The idea was based on the Elliot wave view that after a 5th wave extends, we should get a sharp reversal down to the 2nd wave of the 5th. With the help of the Reserve bank of India, the rupee strengthened to about 46.75 and is now back near the 50 level. Clearly, both exporters and importers are anxious at these levels. While no one can be absolutely sure of the future, I would suggest that all we are seeing now is the perfectly normal Elliot wave pattern of a double retracement of the extended fifth wave. If the original analysis is correct (and I still believe that it is), we should see the Indian Rupee top out anytime now, (max I allow is 51) and to come down even more rapidly than what we saw the last time. Only this time, we will see it carry down all the way to 45.30. Now I know that this is a bold call. The safe way to handle your exposure will be to wait for the move down to start, and quickly join in after that. It doesn’t matter if you miss out the absolute top. It is more important for you to capture a good measure of the remaining move. So make your hedging/trading decsiions accordingly. Good luck. Ramki

Nov 182008

With the stock tantalizingly below $9, many people have expressed an interest to see if there is any change in the outlook. So here is a fresh chart which suggests that perhaps we might find some support around $7.20. An ideal way to trade this will be to wait for a bottom to be in place, and see it confirmed by observing how a correction after a first rebound behaves. For example, suppose Citi touches $7.40 and starts climbing, and suppose further that it reaches $9.50 and then starts easing. We should first see whether it comes down on low volume, but does not violate the prior low of $7.40.We should then join in the buying when we see it move up rapidly on increasing volume. This approach, as I said, is an ideal way to invest. However, being traders, most of us wish to identify the bottom, and try to buy as close as possible to that level. We tend to think that we will be controlling our risk this way because we can then exit at a small loss if the trade goes wrong. Unfortunately, it requires a lot of courage and discipline to get out at a loss. I have learnt the lesson the hard way, and was able to sell off my previous purchase of Citi at a small loss (refer previous posts). So, if you are willing to be strict about stops, then there is no harm bottom-fishing. But do keep your positions small. You can then add as we go higher, and still feel the elation of having invested at least a little bit near the very bottom! (I know that great feeling ;) )

Nov 172008

The objective of every investor is to buy as early as possible at the beginning of every new, major up move. Establishing a target for Wave 5, then, is the most important aspect of Elliot’s Wave Principle. I have presented you with a chart of Google (Nasdaq:GOOG) Let me state at the outset that there are some major objections to the way I have labelled the chart. Instead of a 5-wave pattern, one could actually label this as a zig-zag correction. But either way, the 5-wave pattern from the top of 602 is in its final leg (or possibly already finished at 280). Once we agree on that, we have a frame of reference. After every 5-wave move, a correction has to take place, and because the 5th wave of the move from 602 has been an extension, we should see a move back to 452 in the coming weeks. Please make a note of the level somewhere, and the date and level when I am making this call. The pre-market level for Google today 17th Nov 2008 is 306. If this analysis is correct, we should be looking for a 47% move up in Google over the next few months. Since we are looking for a move of $146, we need to decide how much we can risk losing on any position. This is a personal decision for each investor. However, as a starting point, we should be willing to see a retest of 280 and potentially a move down to 267. Buying below 290 would be a low risk trade, in my opinion. However, how much to buy will depend on your own risk appetite. Let me know if you have any questions. Your best way to reach me will be via the comments. Good trading!

Nov 142008

Two closes below the wedge is certainly not good news. I am loath to push my luck when the trade doesn’t go as expected. There are countless opportunities in the market, and the one main goal for any trader should be to preserve his/her capital to be able to trade again. So I am going to get out of my Citi position at a small loss today. My average rate is $11.05, and as I made 25% on my previous trade, I am willing to give it all back on this trade. (unfortunately I made the 25% on half the size, hence I can lose only about 12% on this trade). Hence anything above $9.75 should be ok for me, but I don’t know how it is for you. Remember one thing, folks. Our goal is to make sensible trading decisions. That I was looking to double my money is not the criteria for when I should get out. The criteria is the markets did not play out as I originally planned, hence I am out. With the S&P500 making a strong come back from near the 830 support level, we might see some follow-through buying today, and that will be a nice window to exit gracefully. Ramki