Wednesday, August 08, 2012

ANGRY BULLS ALL OVER...?

FROM AN EXPERIENCE 
Came across an interesting pamphlet on Crises and Panics by James L. Fraser. It’s an interesting if brief history up through the early 60s. I thought I would share his comments on identifying traits and causes of panics/crises. I am paraphrasing a bit and not completely quoting him on each bullet point here. Bear in mind, this was written in 1965.
Traits:
1) Extravagance of living, first by a few, and then by many…
2) General belief in impregnable prosperity…
3) Lavish private expenditures, which appear to be natural offshoots of immense federal projects…
4) An appetite for speculation
5) Easy money and availability of credit
Indications of impending crises:
1) Rising prices
2) Increased activity of established businesses seeking more production, more sales…
3) Active loan demand
4) Strong increase in labor employment
5) Extravagant public and private expenditures
6) Speculative mania, together with dishonest methods, fraud
7) Labor strikes and increased general violence / social instability
  Excessive pride of opinion, especially an “American First” attitude
Causes:
1) Great failure of confidence at crucial moment(s)
2) Magnificent abuses of credit
3) Readjustment of conditions to changes in values/prices
4) General fall in prices
5) Changes in the monetary unit / revaluation
6) Contractions of or lack of money
7) Over production or under consumption
  Psychological tendencies which covers a multitude of ideas, of which only a few ever hit the public press.
I also found his comments on “The Permanent Crisis 1960-?” interesting:
“Homer said ‘After the event, even a fool is wise.’ I suppose before the event, even a wise man looks foolish. Today, with strong opinions and solutions being voiced daily, a wise man tries to look for facts and thoughts which are forgotten in the heat of backing the opinion of the moment. Social control is exercised now more than ever before. We have a service-oriented economy, supported by the Federal Government as a prime mover in all walks of life. This is social action. We may not wish it or like it but we have it.”
The rest of the pamphlet is also a great read, and reminds one of a quote from my favorite book of the good book (this is for Gibbons):
That which has been is what will be, That which is done is what will be done, And there is nothing new under the sun. Is there anything of which it may be said, “See, this is new”? It has already been in ancient times before us. There is no remembrance of former things, nor will there be any remembrance of things that are to come by those who will come after.

NIFTY FUTURES - LEVELS TODAY (08-08-2012)

NEARBY RESISTANCES NOW @ 5451
NEARBY SUPPORT NOW @ 5307

Day’s Resistance @ 5359-82-92
Day’s Supports   @ 5340-22-07

Below 5358 for 5 minutes, NF slides to
5340-23-08
Suppose if cuts 5359 & trades above the level for 5 minutes see a hike upto 5380-91
Magic figures of Nifty 
Above 5354 targets are 5396 - 5420 - 5443 

Magic figures of Bank Nifty 
Above 10817 targets are  10891 - 10946 - 11001 


INTRADAY SELLING TIPS (AUG 08)
Sell INDIABULLS @ 216; T – 208
Sell HINDPETRO @ 324.50; T – 319.95 

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ALL THE BEST





SPAIN WILL NOT SEEK BAIL OUT: EU SOURCE
Spain will not seek euro-zone financial aid beyond an agreed rescue for its banks if more conditions than those already agreed for recapitalising lenders are attached, an EU source said Tuesday.
Prime Minister Mariano Rajoy is under pressure to call in financial assistance for the Spanish state, not just its banks, but is holding off awaiting a European Commission assessment of new spending targets drawn up for 2013 and 2014.
The Spanish government said on Friday it planned savings of 102 billion euros ($125 billion) by 2014 as it stepped up efforts to bring its strained public finances back within 3.0 percent of gross domestic product, the normal EU limit.
That assessment is unlikely to be complete until mid-September. Eurozone finance ministers are due to meet on September 14-15 in Cyprus, itself in dire financial straits and possibly in need of aid following talks on loans from ally Russia.
“If the Commission considers that the [Spanish] budgetary plan is satisfactory, there will not be a need for further conditions,” the EU source said of Rajoy’s position, referring to terms for any subsequent loans from the European Financial Stability Facility or mooted European Central Bank intervention in short-term bond markets.
In June, Spain secured a 100 billion euro credit line from the EU for its stricken banking sector but investors fear that with its borrowing costs rising, the country may in the end need a bailout.
Last month, Brussels gave Spain an extra year to balance its books, saying it must bring down its public deficit to 6.3 percent of GDP this year, 4.5 percent next year and then 2.8 percent in 2014.
After Spanish borrowing costs skyrocketed in the interim, ECB chief Mario Draghi last week raised the prospect of direct intervention in the bond markets so as to bring down eurozone borrowing costs — but contingent on government support and subject to conditions.
“I want to know what these measures are to see if they are adequate,” Rajoy said afterwards. “Then I will take the best decision for the general interest of the Spanish people.”
On Monday Spanish stocks leapt upwards, and after speaking with US President Barack Obama in a telephone call later in the day, Rajoy “stressed the efforts the government and Spaniards have undertaken to reduce the public deficit and come up with an ambitious programme of structural reforms,” according to a statement from his office.

JUST 21% INDIAN MBA's ARE EMPLOYABLE
The employability of management graduates in India has declined in the past five years, as only 21 per cent of MBAs surveyed are ‘employable’, a study has said.
According to the MBAUniverse.com–MeriTrac employability study 2012, which covered 2,264 MBAs from 29 cities and 100 B-Schools, beyond the Top 25, only 21 per cent are employable.
The previous study of 2007 by MeriTrac had placed employability index at 25 per cent.
However, the number of MBA seats in India has grown almost four fold — from 94,704 in 2006-07 to 3,52,571 in 2011-12 ¿- resulting in a five-year compounded annual growth rate of 30 per cent, but their employability rates have fallen, the study said.
The students were tested for verbal ability, quantitative ability and reasoning by using internationally standardised tests on behalf of recruiting companies.
The index of employability, at 21 per cent mark leaves scope for improvement considering that organisations hire from this talent pool for strategic roles and this is the managerial pool that companies bank on, the study pointed out.
“This report clearly brings out the employability gaps across various competencies and highlights the need for scientific examinations and tests to align the candidate skills to employability metrics,” MeritTrac Services India CEO and Director S Murlidhar said.
Overall average percentage score obtained by MBAs in verbal ability, quantitative ability and reasoning was 52.58 per cent, 41.17 per cent and 37.51 per cent respectively.
While performance on verbal ability seems to be satisfactory, reasoning is an area where there is scope for improvement. Considering that the elements of the reasoning test are crucial to making sound management decisions, this is a result which warrants closer attention, the study noted.
“Questions are asked about the talent coming out of MBA colleges, and whether they create a workforce responsive to the needs of the economy like understanding of business and on-the-feet thinking. So, decision-making skills are being valued more than ever,” MBAUniverse.com Chairman Amit Agnihotri said.


10 WAYS OF TRADING: WILLIAM J.O'NEIL
1) Do not diversify broadly, instead focus on the leading stocks in the best industry groups.
2) Cut any loss when the stock is down 7%/8% from your buy point.
3) Buy stocks that are going up in value, not down.
4) Add to a position as the stock goes up in value from your buy point not at lower prices.
5) Buy stocks near their highs for the year not their lows.
6) Study price charts to discover how the best stocks behaved historically in price action.
7) Trade in the right direction based on the trend of the general market.
8) Buy the best stocks in the market as they break out of properly formed bases or when they bounce off their 50 day moving averages.
9) Do not be influenced by others, trade your plan.
10) Buy stocks with the best earnings and sales growth at the right time using charts.

RICHARD DONCHIAN RULES
Richard Donchian is known as the father of trend following. His original trend following ideas form the basis for all trend following success that has followed. Below in an excerpt from an article written in 1995 about his 5 and 20 day moving average system:
Title: Donchian’s five- and 20-day moving averages.
Author: Richard Donchian
Publication: Futures (Cedar Falls, Iowa) (Magazine/Journal)
Date: November 15, 1995
Publisher: Oster Communications, Inc.
Volume: v24 Issue: n13 Page: p32: ISSN: 0746-2468
………………………………………………………………………
On Wall Street there are two conflicting adages:
1. “You’ll never go broke taking a profit.”
2. “Cut your losses short and let your profits ride.”
Experience has shown that in commodities trading, the first of these “old saws” is dangerous and misleading, while the second may well be regarded as the one lesson the inexperienced commodity trader should learn if he wishes to have a better-than-even chance to come out ahead.
Every well-designed, trend-following, loss-limiting method for trading in futures (or stocks) rests on the basic principle that a trend in either direction, once established, has a strong tendency to persist, at least for a time. Among the many trend-following approaches now in use are the Dow Theory, point-and-figure chart techniques, swing methods (other than the Dow Theory), trendline methods, weekly-rule methods and moving average methods. We’ll focus on moving average methods and, in particular, the comparatively simple five- and 20-day moving average method.
The Method
The rules for the five- and 20-day moving average method break down into two categories: general and supplemental.
General rules:
1. The extent of penetration of the moving average is broken into units, depending on price level. For commodities selling over 400 (wheat, soybeans, silver), for example, a penetration of 40 cents is required (Donchian had six price classes in the days before interest rates and stock index futures).
2. No closing penetration of the moving averages counts as a penetration at all unless it amounts to at least one full unit (39 cents in Rule 1 was not enough for penetration – it had to be 40 cents to count).
Basic Rule A: Act on all closes that cross the 20-day moving average by an amount exceeding by one full unit the maximum penetration in the same direction on any one day on a preceding occasion (no matter how long ago) when the close was on the same side of the moving average. 
For example, if the last time the closing price of cotton was above the moving average it stayed above for one or more days, and the maximum amount above on any one of the days was 64 points, then when the closing price of cotton moves above the moving average, after having been lower in the interim, a buy signal is given only if it closes above the average by more than 64 points (the unit in cotton is 0.10). 
This principle – the requirement that a penetration of the moving average exceeds one or more previous penetrations – is a feature of the five- and 20-day method that distinguishes it from other moving average methods.
Basic Rule B: Act on all closes that cross the 20-day moving average and close one full unit beyond (above or below, in the direction of the crossing) the previous 25 daily closes.
Basic Rule C: Within the first 20 days after the first day of a crossing that leads to an action signal, reverse on any close that crosses the 20-day moving average and closes one full unit beyond (above or below) the previous 15 daily closes.
Basic Rule D: Sensitive five-day moving average rules for closing out positions and for reinstating positions in the direction of the basic 20-day moving average trend are:
1. Close out positions when the commodity closes below the five-day moving average for long positions or above the five-day moving average for short positions by at least one full unit more than the greater of 
a) the previous penetration on the same side of the five-day moving average or 
b) the maximum point of any previous penetration within the preceding 25 trading sessions. If the distance between the closing price and the 20-day moving average in the opposite direction to the Rule D close-out signal has been greater within the prior 15 days than the distance from the 20-day moving average in either direction within 60 previous sessions, do not act on Rule D close-out signals unless the penetration of the five-day average also exceeds by one unit the maximum distance both above and below the five-day average during the preceding 25 sessions.
2. After positions have been closed out by Rule D, reinstate positions in the direction of the basic trend 
a) when conditions in Rule D, point 1 above are fulfilled, 
b) if a new Rule A basic trend signal is given, or 
c) if new Rule B or Rule C signals in the direction of the basic trend are given by closing in new low or new high ground.
3. Penetrations of two units or less do not count as points to be exceeded by Rule D unless at least two consecutive closes were on the side of the penetration when the point to be exceeded was set up.
Supplementary General Rules
1. Action on all signals is deferred for one day except on Thursday and Friday, For example, if a basic buy signal is given for wheat at the close on Tuesday, action is taken at the opening on Thursday morning. The same one-day delay applies to Rule D close-out and reinstate signals.
2. For signals given at the close on Friday, action is taken at the opening on Monday.
3. For signals given at the close on Thursday (or the next to last trading day of the week), action is taken at the Friday (or weekend) close.
4. When there is a holiday in the middle of the week or a long weekend, signals given at the close of sessions prior to the holiday are treated as follows: 
a) for sell signals, use weekend rules; and 
b) for buy signals, defer action for one day, as is done on regular consecutive trading sessions.
A word of caution
The five- and 20-day moving average method, and most other trend-following methods, for that matter, are not good to follow unless you are prepared to include in your program a sufficient number of futures to provide broad diversification. Risks are increased to an inordinate degree if you try to follow the method in one or just a few selected contracts.
The commodities that are in a pronounced trend and are not giving, new signals are frequently the ones in which the best results are attained. Therefore, in starting a new program it might be advisable not to wait for new signals but to take positions in the direction of prevailing trends in those not giving new activation advice. Because the markets are moving so wildly, however, it might be best to 
a) go in the direction of the trend only after one or more days of counter-trend movement, plus a day move in the direction of the basic trend, and 
b) to use an arbitrary stop on positions taken without waiting for new signals.
Remember, five and 20 days are not necessarily the best lengths for moving averages. And, most probably, the action rules themselves, as outlined above, could be refined and improved. Also, it may be that exponential moving averages, weighted moving averages, moving averages based on highs or lows or daily means, or some combination of all these, would produce superior results.
In this field of technical study it is probably safe to state that the beginning of wisdom comes when you stop chasing rainbows and admit that no method is perfect. When you find yourself willing to settle for any comparatively simple method that in tests over a long period of time makes money on balance, then stick to the method devotedly, at least until you are sure you have discovered a better method.
………………………………………………………………………
Richard Donchian worked at Shearson Lehman Bros. while developing his technical analysis and trend-following methods that today many traders use as the base of their systems. He also launched the first managed futures fund in 1948. Donchian died in 1993 at the age of 87.






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