Dear Boarders,
I had casually mentioned once, but it would be interest to many Investors if they carefully follow my practical rule that was tested by me for over 21 years.
For INDICES – 200:800 rule and 30:70 rule
Once I mentioned in this forum that indices usually follow the repeat pattern of 200:800. That is index movement usually moves as under:
Example:
7800 – 8200 – 8800 – 9200 – 9800 – 10,200 – 10,800 – 11,200 – 11,800 – 12200 – 12,800 – 13,200 – 13800 – 14,200 – 14,800 – 15,200 – 15,800 – 16,200 – 16,800 – 17,200 – 17,800 – 18,200 – 18,800 etc.
This applies to all indices in the world. Look at SENSEX and also DOW recently. Dow was always jumping up from 11,200 to 11,800 and once went to 12,200. When it fell from 11,200, it dropped to previous level 10,800 (-400) and then to 10,200 (-600), then to 9,800 (-400) and then again 9,200 (-600)
Because this is Text only format, I can not make table which is easy to read and follow. In my website I will post this article fully re-written with tables.
In India too, the same pattern was followed, so also in Hong Kong and Japan.
How to read this Kalidas Rule?
If the index is rising say from 9200, it will go to 9800 in rising trend. If it is a falling trend, then it will go down to 8800. Right now, the Dow is trading at 9200 level and following downward trend, so it will go down to 8800 first, then if not stabilizes, to 8200. If it breaks 8000, then hell will break loose. Whenever, the magic figures of 8000 (or multiple or division by 10 that is, 8,80,800, 8000 etc), it will drop by 40% to go to 5000 or multiple/division by 10 level ,that is 8 will go down to 5, 80 to 50, 800 to 500, 8000 to 5000 etc. It reverses in same fashion.
30:70 SUB-RULE FOR INDICES
This is particularly useful to Traders of indices. The index rises above critical level by 30 (to 8230 for 8200; 8830 for 8800, 9230 for 9200 etc. similarly when it falls, deduct 30 points way down for support level. For instance if it is falling 8200 will test to 8170, 8800 will test 8770, 9200 will test 9170 etc.
For example, you find the Sensex falling below 11,800. It will test the support of 11,770. If it does not hold, it will go down all the way to 11,200 (with one minor stop at 11400) where it will first test the level of 11230. If it does not hold, it will be forced down to 11170 in less than few minutes. If it does not hold the support at 11170, then it will go down to less than 11000 to all the way down to 10,800 (halting at 10,830 or 835 and then testing the support at 10,770. If the daily fall is more, then after hitting say, 10,770 it will recover to over 11200 by testing upper resistance of 11,230/235 level. This is what happened on SENSEX a few days ago.
You can work out the exact point easily using Excel spreadsheet by inputting the formula properly.
Example: in rising trend
Index rising from say, 10,100 – it will go to 10,170 where it will test the downward support level, if it holds above 10,170 and in rising trend (because it has already advanced from 10100), it will test the level of 10,230/235 level, where it will consolidate for longer time. If it passes this hurdle, then it will rise very fast and may rise to 10,400 level (if it can pass 10,370 level fast) and may in fact test 10,430/435 level and then retrace for correction, but will not fall below 10,370 if the trend is strong, news is positive and other Asian markets are firm, with UK also opening stronger.
The above rules are not absolute but they usually hold well in more than 80% to 90% cases. So if the index is in downtrend, and it is at 10,230, then sell short if the trend is downward, and within minutes it will test the support of 10,170 when you can buy back, making 60 points in less than a minute.
Use it as Demo exercise first, If it suits you it is fine, but do not come back like Kalidas, you told us 2400 rally in 7 days and it lost 2400 points without reading my entire post with preconditions. This is a practical rule from experience. Try it at your risk.
Kalidas, Hong Kong
9-10-2008
2) Qn: wht do for Maruti Suzuki?
Sell for the time being. I you want to stay on in the Auto sector, swap into TVS Motors (Rs 30 or about) in correction if present. Maruti has not dropped much,so in the event of rally, it will come down and those stocks which dropped most will rise.
Maruti - SELL (although it is a good company)
Tata Motors: SELL and do not look back
Ashok Leyland : Reasonably good buy but lousy management. The controlling family may come into serious problems in Switzerland and London.
TVS Motors: Accumulate
Hero Honda: Good to own, in steep correction. Better than othr breeds
Hindustan Motors : Ignore it. Even if it has land in West Bengal, who is going to buy it after Tata`s ignominious exit from Rs 1 Lakh car?
Watch for Tractor related stocks - they will do better and are safe except those companies, where they have family disputes.
Kalidas, Hong Kong
13-10-2008
3)
for shahconsult,
The theory of numbers merely informs you the support and resistance level. Whether it is downward or upward trend is to be determined by the investor. Further, index trading in volatile times is very difficult art, where you have to go on buying or selling the position at all times with stop loss at 50 pts (depending upon the Rs per point movement - I am not aware)
Normally, it would have rebounded at 10800 level - in fact it halted exactly there. Today, due to weak market, it went to 10200 level and then rebounded by 200 points.
Right now, the market is in downtrend with no end in sight. Dow is destined to go to 5000 level soon. There is lot of redemption pressure on funds/hedge funds, so they are selling without any respite.
However, if you take the position around the key level points, you will have reasonable chance of success. In this type of volatile market you have to buy opposite options upto 20% of value of major position.
Kalidas, Hong Kong
16/10/2008
4)
| for shahconsult What I meant is that if you take a position, say long position in futures, say 10 contracts, buy 2 contracts equivalent sell options even if they are distant price say about 200 or 400 pts away with longer maturity say 2 months to 3 months - of course it depends on the cost. I am not aware of actual pricing, so that I can not guide you into this. The best way to deal with volatile market is to play the calender spread in options. Here you one and sell other and receive or pay the difference. If the market goes up, sell the long position and buy short position again by placing higher limit position. If the market corrects and come down, then sell the higher end position and see whether the trend is still downward or consolitaing. I am aware of option play in USA where the time is on your side (long dated options are available - some leaps are as long as 2 years which are excellent hedge if one takes short timed position) Yesterday, too, the Dow closed at 9978 or close to 9970 - 30pts below the round figure level of 10,000.BSE also rebounded from 10,200 - key level and closed at intermedite level of 10581 (close to 10600 - about 20 pts below against my rule of 30 pts) Please note that at every night or early morning,you have to determine what was the trend in USA and how Asia behaved. Once you have figured out the trend, you roughly know whether you should be on short side or long side. Then apply my Index Movement rule. Kalidas, Hong Kong 17/10/2008 | ||
5)
Qn:when to buy house in this time?.
| for Rohith (Guest) I would wait until this crisis is fully played out. India always have delayed reaction. south India economy is IT based, so if that sector is affected, you will soon know by downspiralling Rental which is the first sign. My Hong Kong based friend recently had to let out a Bangalore flat (built by L&T) from Rs 14000 to Rs 8000 only (he was in hurry to let out on temporary basis) Watch and study the Rental. Go on calling brokers for rental purpose and see in which direction the rentals are going. Multiply the rental x 180 (or Maximum 200 times) times to have rough estimate of the market valueo of the apartment. Kalidas, Hong kong 17/10/2008 | ||
6)
for avi_guddu
It is overpriced. Even my property in Ghatkopar is bidded for Rs 70 lakhs and only recently rental was bidded up to Rs 24000 - earlier it was just Rs 14000. I still consider my propery highly overprices and have decided to sell it.
Rentals never lie - that is a fact and stark reality. Just as when the SENSEX was at 21000, Credit Lyonnais gave a call for 55,000 and now you see the level below 10,000
It takes about 3 months before you see the effect of stock market crash felt in the property market. This time around, no one will celebrate diwali
Kalidas, Hong Kong
17/10/2008
7)
Qn: when to start buying in sensex(now at 9975)?
I would start buying when the Index is at 9200. Yes, 8000 will be a big and solid support, but I would so second stage buying at that time. Please note that you have to consider the sentiments as well while using my figures.
Even today, the market closed at 9975 close to 30 points below 10,000, the intermediate level. The strong level to see is 9800.
At the moment it appears that Stock of Reliance and State Bank is under severe selling pressure. It looks to me that Mukesh Ambani may have faced margin call for the securities (RIL) pledged for some other projects. Since RIL prices have fallen from 3200 to 1300 now, he would have got very large margin call from his financiers in the tight money market. So, the pledged securities may have been sold by the financiers.
Same thing may happen to Anil Ambani who too was floating new company every day. I have mentioned in this forum time and again that i do not like companies who buy some or the other new company or project every day. Where did they get the money from? The banks always need security, which they would have offered their own shares. Now that share values are down, they have to meet the margin call or let the shares be sold in the market.
This is my presumption. The fact will be known only to them and their bankers, because there are no public disclosure requirements for such actions
Kalidas, Hong Kong
17/10/2008
8)
Qn:shall we buy now?how much? and wht abt various scripts?
Reply Post for Shia (your Ref: 18 Oct 2008 05:21 ) My Ref: 08-MMB-R-001-IN
One never knows how much a market can fall. Right now, all actions are in wrong directions that increases the risk.
However, I have turned stock specific rather than market generalist. The preliminary stage of buying has opened. I am buying stocks that have corrected almost 70% or more from the peak of last year (2007)
I am withdrawing my 100% cash call. Invest 15% in the market now in select cases. Invest more 10% when the market is at 9200, 15% more when Sensex reaches 8100.
If the market holds above 8100 for long time and begins to go higher, then invest 10% more.
if it falls below 8100 and does not go much higher, then you may have to be very careful. Under these circumstances the market could collapse further and may go to 5000 level if no positive actions are reported further.
right now, ITC is better than HLL. However, when the market recovers, these stocks will go down and others move up.
Both Punj Lloyd and GE shipping are within buying range. Let Punj come down t0 181 or about and GE shipping - just buy it
One can buy RIL when 1200 or below - at 800 strong buy. Avoid Maruti, Tata motors for the time being. Focus more on 2 wheelers than 3 or 4 wheelers
Hotel stocks (Taj GVK, India Hotels, Hotel Leela in that order) Tata Coffee (watch for major fall and then buy - not corrected enough), Software giants like Infosys, Wipro, Satyam, Airlines are better than Auto (except farm sectors like Mahindra, Punj Tractor), Gas stocks (GAIL, GSPL, Petronet) Essar Oil, RIL (near 1200 or below), some stocks in entertainment ( I will tell later) and some infrastructure stocks (not yet fully studied)
for the moment, you may have a stock list of 20 rather than ideal 12. Not more.
Almost all stocks that you have are good to own - no need to sell them in hurry. IFCI is coming to stage to buy large quantity at 25 to 18 level. Abhishek Industries (about 8.10 to 8.35), Arvind Mills, are attractive for large position. Ambuja Cement (coming to buying range 51 ot below)
Kalidas, Hong Kong
Monday, October 20, 2008...
9)
Qn: abt GUJ NRE Coke?
I am more on gas and oil rather than Coal or coke - Kalidas
10)
Qn:Are you hinting that INR should / would appreciate ?
Where do you INR in that case ?
Does it mean USD will no longer be world currency ? who else ?
and how will gold prices in india vary if this home coming and confidance crisis both play out together .
Ans:
for sd3
You have understood but did not interpret well. India did not overseas, so the question of home coming does not arise. The FII who invested into Indian market, are withdrawing their $, GBP, Euro etc (mostly dollar) by selling the indian equities and buying their own currencies to take them home. This is one of the reason for rupee to depreciate and rise of dollar.
USD is still today`s major exchange currency, and it will play even more important role in future. EUROPEAN MONETARY UNION may ultimately break up in next 24 months due to aversion of each country within EU to withdraw into their own shell. They will say, why should we suffer for the fault of say, Belgium or Netherland? Why should we bear their consequences?
What mistakes committed by the Banks and Brokers are committed by various governments in hordes. All are clamouring to guarantee the bank deposits, and debts of their countries` private banks. How could they do that?
The very mistake committed by the banks and brokers was that they guaranteed the third party obligations without understanding the transaction. They never evaluated legal position behind the trasaction. This is why they lent themselves into hot soup.
Now, the respective countries are guaranteeing the obligations of their banks without understanding the transactions and legality of the deals. They are making the same mistakes as their banks and brokers did at first instance.
After banks, there were these stupid governments. After governments who? The crisis is deepening. The losses of banks and brokers are ultimately sought to be thrust on the taxpayers like you and me for no fault of ours.
I have mentioned about gold prices and their behaviour many times in this column, so avoid its duplication.
Kalidas, Hong Kong
22-10-2008
11)
Qn: About zero coupon bonds.
Ans:
I have to search for my well written article when I was the stockbroker. Right now, there are no such instruments that will help the investor. This is why I am taking a bit long. Except for South Africa, where there aree several long dated Zero coupon bonds extending into 2017 to 2032, there are no more such instruments.
When the interest rates go up very suddenly, and the companies find difficult to raise the money through normal bond channel, they come out with Zero coupon bonds.
IDBI, SIDBI, ICICI Bank and Sardar Sarovar(gujarat) were the only the issuers in the past in India when India was undergoing the severe Forex crisis. Only Sardar Sarovar is still traded on BSE. The issuer tried to redeem the bonds several times ahead of maturity, but failed. The yield on these bonds were 18% at the time of issue.
Kalidas, Hong Kong
22/10/2008
12)
Qn: abt FII buying/selling
Ans:
I have no idea how these statistics are compiled. It looks like (and I may be wrong)that FII while selling were also buying some futures or options just to hedge their Sale positions, so that, in the event of market breakout on the upside, they are not caught on wrong foot.
May be some other persons from Moneycontrol board itself or those who are familiar with this situation might clarify.
Personally, I care a damn what FII are doing. The information that we get if often confusing, so why let them dictate us?
Kalidas, Hong Kong
22/10/2008
13)
Qn:
The fiance minister said 'They will follow conventional and unconventional measures'As needed
In your opinion what should be the unconventional measures
Ans:for gv
If Finance Minister is practical, he will not cut the interest rates, but cut Corporate Taxes (and also Individual Income Tax) for just current year and next, by say 3% corporates and 5% for individuals.
He should cut corporate income tax further by 2% in coming 2 months, when the market is in recovery mod. The special tax cut may continue until March 2010.
If Corporate profits are revalued after tax cuts, and if it is found that Corporate tax profit may rise by Rs 2000 crores collectively, then based on at least 15 times, theoraticlly, Rs 30,000 crores of fresh funds coming in. May be due to crisis, the inflow may be less immediately, but when the market stabilizes later, the very first thing the FII and Funds will look at how much profit tax benefit each company will get and buy those shares accordingly.
Offering tax cuts to individuals does not help because they are not listed on stock exchange
Kalidas, Hong Kong
24/10/2008.
14)
Qn:How to play now
Ans:
Yes, but it applies more to indices above 8000. For index lower than 5000, use 50% target, that is, 100:400 and 15:35 ( I have not tested them because most of the times, the index were above 6000 everywhere. so trade carefully
Kalidas, Hong Kong
24/10/2008
15)
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