Why Gold will outperform. . .

Now with the US facing its worst economic problem since 1929 or perhaps worse of all time, it is important to note certain things:

1) US economy is the world economy's engine of growth if it stops then world economy stops to grow. . .

2) Not only US but Europe are in deep trouble. . . and Japan has been in a trouble now for 30 years that makes it worlds top economies in trouble all at the same time. . . this is not good news.

3) The banking and financial industry have collapsed in the west, this has never happened before as earlier there were industries that went bust but never the support for these industries i.e. Finance industry itself. . .

So what lies in store moving ahead. . . Governments all over the world are using the available options to them, namely on the fiscal front by creating newer projects and secondly on the monetary front by printing in more money . . . and printing in more than ever before. . .not exactly knowing what the impact of printing money is going to be in the long term and worse not knowing whether printing money would finish this crisis in the first place. . .However what this printing is leading to is lot of side effects associated with them. . .One for starters that we see is currencies of these countries heading southwards. . .U.K being one prime example wherein a pound has touched an all time low and in my opinion should fall even more. . .

Currently we are insulated from the monster called inflation as commodity prices have crumbled due to recessionary fears and fall in demand, however with so much money going into the system, inflation might come back with full force (not necessarily in India though, as we have been cautious in our money printing). Also major economies do not have too much flexibility with respect to the interest rates are currently the interest rates worldwide already are near zero (India again stands to gain again as we still have lot of space to maneuver on the interest rates). With so much money sloshed into the system, countries would tend to focus on 'real assets' or gold standard. Gold would tend to outperform, with more and more money getting printed in the system. The first signs of this are already visible with gold touching unprecendented heights lsat week. . . Hence when rejigging ones portfolio it is important that due attention is given to gold . . .

Nifty Upmove surprising. . .

The recent upmoves of Nifty, have caught me completely offguard. . . infact our markets have quite outperformed the world markets. . . the upmove has been surprising but now important thing to note is that we have now tested 2550 and it has held up quite nicely. . . infact this time it did not even reach there, it came back from 2650 abouts. . . I also got stuck with shorts in this upmove :( 

 

now that the upmove might start with nifty holding for a couple of days. . . its time to take stock. . . currently I am not fully convinced with the upmove hence I would stay on the sidelines or at best take positions in cash markets . . . its best to sit out when you are not fully convinced . . . lets see how the markets behave next week . . . 

 

As of now no directional calls from my side.

 

Nifty Crumbling!!!

Now that the downtrend has its claws firmly in place, its time to take stock again. . .My biggest fear still remains the earlier bottom of 2550. . .which i suspect will not hold also. . .Because as I have mentioned earlier if we break 2550 then it means a long phase of finding a new bottom, then retesting the new bottom and then moving up!!! Phew long process!!! Also theres now a talk of Nifty touching 2000-2100, well I dont buy into that as no one can predict the levels accurately, its just the direction that one can give, hence currently the trend is down, but where this will lead to is anyones guess . . .

I have been reading articles on various financial portals and most of them are of the opinion that the world economy is just getting into the worst phase ( I hope they are wrong!). . .but if that is indeed true then it means that markets have another 20-30% more to go from here on the downside. . .Anyhow the charts are currently indicating that we are in a negative zone, the negative zone basically started from 9th of January and it looks like this current downtrend will last till the expiry at least. . .we might see some small upmoves but till the time Nifty decisively breaks 2750, even the small uptrend will not hold. . .

Equities is becoming a bad word?

With markets falling on a daily basis, for an average on the street investor equities is indeed becoming a bad word. Many will swear never to come back to the markets. . . today the govt bonds and Fixed deposits look more attractive than ever before, and so is the case with gold. . .anything that offers 'secure' returns now looks the only option . . .Its quite understandable considering that the investments have actually come to 1/10th of what they were at the peak of the bull market, and now with people predicting that we would not be seeing those highs for another 5-6 years, its not a comforting news. . . What is complicating the situation is that earnings have started to fall and hence the paradigm changes, so now you dont even know that the company that is quoting at a PE of 2 is cheap or not, since for all you know that next quarter it might end up in losses. . .

I am also little terrified now as to where is this downturn heading, as I had hoped that the recovery or the uptrend that we were seeing for the last one month, would take us higher. . . now with the new downturn beginning, all one that can hope is that we do not break the previous lows. . .

It is very very critical that NIFTY does not break below 2550

as we have already tested that bottom, and we have rebounded from there twice. If we break that level then the problem is that first we would have to make a new bottom. Then after a month of that go up to some level then come back and retest that bottom, before we start our new upmove and then all we can do is pray that the new bottom does not get broken again. . . whew!!!

How things can change within one year, its a spectacle to see. . .

More Bad Times Ahead?

Today I was seeing an interesting interview with Shankar Sharma on CNBC, he made some interesting comments not all them were comforting, but most of them made lots of sense. . . although his views were connoting extreme bearishness and I hope that things wont be so extreme but none the less he has been the only one who has been able to predict the markets accurately this year. . . 

Some of the main takeouts:

1) COMMODITY CYCLE OVER: some of the heavy weight commodity cos may show long periods of no significant earnings increase or even losses. Hence companies like TISCO, RELIANCE, SAIL might be risky to hold going further

2) NEW HIGHS NOT TO BE REACHED TILL 2-3 years!!!: This one even spooked me. So according to him we might see some rallies here and there but to take out the earlier tops of 2008 begining, would not happen till 2015. . .scary no?

3) MARKETS MIGHT SEE SOME STRONG RALLIES:  There would be some rallies in between that would give the investors a 20% kind of returns from the absolute bottoms. So if you are smart enough to trade there might be some opportunities.

4) BUY ONLY LARGE CAPS IF AT ALL: Stay away from Midcaps completely, trust only the biggest of the names.

5) STAY AWAY FROM EQUITIES: and real estate also. . .

Well this is a gloom scenario, and I earnestly hope that things are not so bad, but if it were then we should be ready for some really tough times. . .

Downturn might have started.

Outlook : Negative

With todays downmove starting it seems that this might be a precursor to the things to come. Todays trade was significant in more ways than one, as markets were not giving clear signal of its direction. However the mood was already spoiled with Satyams disclosures. I must comment that our markets were quite resilient to external factors and was taking everything in its stride till Satyam came along. The problem with Satyam is that it shakes the entire foundation of belief in stock markets, it makes it not fair for all game and people do not like that.

My only fear is that in this downmove we should not break the October lows else we might enter into a period that will take a long long time to correct. Also another point to note is that our markets are usually not favourable in the result season. With the results expected to be bad this year in any case, the markets might already have started the downturn.

So how do we trade this market. Keeping strict stoplosses does help. Buy only when you are sure that the valuations are compelling and screaming and yes keep only the quality stocks, wherein the managements are credible.

Basics of Investing in todays scenario

Now that our markets seem to have stabilised, and thankfully my calls went  right :) its time to do a revaluation of the current scenario. . .

Most of the stocks are now trading in their positiveMACD's which basically means that the short term trend for these stocks is positive, but the important thing to understand is which of these stocks would outperform. . . I think an important criteria to look at this point of time would be the accumulation / distribution criteria. For e.g. A case in point would be the 2 stocks I own.Indiabulls and Zylog systems. . . Whereas Indiabulls has started to show a good accumulation pattern and it has reflected in its price moving from a low of 77 odd to around 140 within a span of 2-3 months. . . whereasZylog has not been showing any such pattern and the stock price also has not moved beyond the 100 odd, from a low of around 80 odd. . . 

Going forward, there are a couple of things that should be kept in mind:

Fundamental Perspective:

1) Earnings estimates: Assured earnings and some growth

2) PE & EPS : Realistic wrt Industry and markets in general

3) Dividend yield: If it comes to levels above the risk free interest then the stock has to be a good buy. I would keep it at around 10% 

4) Stability: Low leverage

Technical Perspective:

1) MACD: Should be positive or atleast moving out of negative territory

2) Accumulation / Distribution: Need to be accumulation patterns

3) RSI: Should be within reasonable limits.