Finally, China Acknowledged The Bubble

For so many months all economist and equity and financial research analysts across the world have been trying hard to accentuate the eyes of the world economy that china is building a asset bubble fueled by excess over capacity. Now finally it has been accepted by china itself that they have created a bubble larger than them to control. Before I start on I must thanks all the equity research and financial analysts that we all have succeeded to draw the attention of the upcoming asset bubble which will make the process of recovery out of recession difficult.

China's lending surged to 1.39 trillion yuan ($203 billion) in January and property prices climbed the most in 21 months. According to the National Development and Reform Commission property prices in 70 cities of china have rose 9.5% from a year earlier. The surge of prices has been due to the affects of easy lending followed with uncontrolled flow of funds in to the main streets. Real estate is one of the sectors where prices have scaled up. Automobile followed with cements and capital goods are also under the ambit of excess flow of funds resulting over capacity bubble .Asset prices and commodity prices are also under the threat of excess valuation.

It's not due to the stimulus package alone declared by china but the uncontrolled loans given by banks without taking care of any quality measures on the loan papers. Its juts like US mortgage case where quality of loans was never taken in to account. China's 9.35 trillion yuan of loans in 2009 have given birth to the fear of another financial crisis in the fastest growing economy.

The borrowing in the month of January's was 14% less than a year earlier, after the government targeted a reduction in new loans this year to 7.5 trillion yuan from a record 9.59 trillion yuan in 2009. This have happened due to the strict norms declared by china during the end of January 2010.Chinese banks are now focusing and have instructed on the quality of loans that are being disbursed. The new lending norms framed by china are:

• The China Banking Regulatory Commission (CBRC) issued new regulations on Saturday evening telling banks to set lending quotas after "prudent calculation" of borrowers' "actual demand".

• It also reiterated working capital should not finance fixed-asset investment and equity stakes.

• Banks have been asked to keep a tab and follow a detailed analysis of the repaying capabilities of borrowers through inspections and monitoring.

• Borrowers will not be able to obtain loans without declaration of a specific use, and they should meet bank representatives in person to avoid false claims

• It have been noticed that the borrowers are borrowing more than they require. It have been found that despite of ample funds on hand for routine business operations, Chinese enterprises are borrowing much more than they needed in order to speculate with various types of investment. This is creating the bubble of speculation and thriving up the prices of the commodities and other asset classes.

• The threat lies once they fail to meet the obligation of excess payment over their original capacities followed with a correction in asset prices and commodity prices,

• In support of the government's 4-trillion yuan stimulus package, Chinese banks have lent an unprecedented 9.6 trillion yuan in 2009, nearly half of 2009 gross domestic product.

• 80% of the funds went in to stock market and real estate. This has lead to shoring up of prices to an unprecedented in china. Same thing applies for stock market.

• Chinese government is aiming to restrict credit supply to 7.5 trillion yuan (about $1.1 trillion) in 2010.

The below chart shows the stock market rally of china.

China has built the castle out of sand and when it will burst out it will tighten the financial recovery of the world economies. Since china is very much intricate with major economies across the world.

If we dig in to the investments made by china in other economies then we will get a more clear picture of the tremors that might the world economy might have to face if the over capacity and asset bubble burst out.

• China's foreign investment rose for a sixth straight month in January

• Foreign direct investment rose 7.8 percent in January from a year earlier to $8.1 billion according to the commerce ministry.

• FDI more than doubled from a year earlier to $12.1 billion.

• The government approved the establishment of 1,866 overseas-funded ventures in January, a year-on-year increase of 24.73 %.

• Even European countries are now dependent on China for doing investments.

So if any bubble burst out happens in China then inflow and out flow of funds will get stuck and another phase of skeptical economic investments phase will start on. Every economy will be shaken to go for cross border investments.

At the same time when the bubble was getting prepared Chinese economy grew at 10.7% in the forth quarter of 2009 showing the first green shoots of recovery out of recession in 2009 beginning. China's fourth quarter growth of 10.7%, compared with 6.2% growth in the first quarter, 7.9% in the second quarter, and 9.1% in the third quarter. China have show the recovery out of the recession

The below chart shows the GDP growth of China.

It have created a bubble on the go of 10.7% GDP growth, but when it started its journey after 2008 September the world economies were busy in finding a piece of land in the ocean of recession. China gave the first land out of the ocean of recession to stand up and bring the hope of recovery mechanisms among the hearts of the world economies.

China's economy expanded 8.7% in 2009 from a year earlier, indicating that China achieved its full-year growth target of 8% for 2009. GDP (gross domestic product) rose to RMB33.54 trillion yuan (US$4.91 trillion compared with the US GDP of about $14 trillion) in 2009.

But all at the cost of excess and uncontrolled flow of funds Chinese main streets of economy. The only thing which makes happy is that Chinese governments and banks have accepted and the over capacity bubble and have taken measures to control the risk. We can expect some slow down in china economy due to cut down of excess flow of funds and some pull back from the growth rate of 10% GDP. We will found very soon a slow growth as its by natures law that after an unprecedented growth their have to be a decline. The next ball game for china is to maintain the growth rate consistently with out making a bluff call of decline.

Investments in china should be done with caution followed with detailed analysis of the risks that might pop up. It would be better to look out for some other economies who are still trying to come out of the dark days of recession. Since their is one thing of surety that its difficult to climb from 100 to 200 but easy to climb from 10 to 100.Since in both cases the percentage of risk is different in case of fall down.

Source - ISTOCKANALYST

MACD! Some Addittional Rules!

The Moving Average Convergence-Divergence (MACD) is a timing model, which was invented during the late 1970s by Gerald Appel, has become one of the most popular of technical tools, used by short- and longer-term investors in the stock, bond, and other investment markets. It is a featured indicator on virtually every computer-based technical trading program and trading platform. MACD is an indicator for all seasons. Many of us use MACD for simple crossovers or looking for Divergences but there are certain very significant supplementary additions to the basic rules relating to MACD buy/sell signals which Gerald Appel describes in his book Technical Analysis: Power Tools For Active Investors. These are as following:

• Buy signals are much more reliable when the MACD has crossed from above to below 0 at some time since the most recent sell signal. The MACD does not have to be below 0 at the time of the buy signal, but it should have been below 0 at some time since the start of the recent decline.

• Sell signals are more reliable when the MACD has crossed from below to above 0 at some time since the most recent buy signal. The MACD does not have to be above 0 at the time of the sell signal, but it should have been above 0 at some time since the start of the most recent advance.

• During very strong market periods, usually during the early and best stages of bull markets, the MACD will retreat during market reactions to a level just above 0. In this case, you can shade the previous rules a bit as you might if the MACD tops out just below 0 during a bear market or severe intermediate decline. Most often, however, the 0 crossing condition should be respected.

A very important rule, if there are no divergences – means that MACD lines and Price lines are moving in conjunction and trends of the markets are favorable with Price rising above its MA you can ignore the first sell signal generated by the MACD. YOU SHOULD HOWEVER TAKE THE SECOND SELL SIGNAL!!!

The above rules help you in setting procedures by which you can buy weakness and sell strength rather than buying and selling every change in minor trend and this also reduces the frequency of trading.

In addition to above Gerald Appel also advocates the following:

• You should maintain at least two MACD combinations: a faster one for buying and a slower one for selling.

• When market trends are very positive, buy very fast and sell very slow. You can employ the 6–19 combination for buying, or you can employ the somewhat more reliable 12–26 combination. The 19- to 39-day combination is used for selling.

• When market trends are neutral to somewhat positive, buy fast and sell slow. Use the 12–26 combination for buying. Use the 19–39 combination for selling.

• When market trends are clearly negative, buy fast and sell fast. You can use the 12–26 MACD combination for both buying and selling, in which case you will sometimes be selling before the slower-moving 19- to 39-day MACD has crossed from below to above 0. However, unless a stop-out takes place, the 12–26 MACD lines should generally rise above 0 as a precondition for a sell.

Hope this little write up is useful to friends who like me are avid users of MACD in their technical analysis. Some basic information on MACD can be found here.

RSI! A Different Perspective!

This week end I had time for some leisurely and informative reading. Yesterday I had posted some stuff on MACD, today I am posting some thing on RSI. I found this a little fascinating, will see how it fares though when looking for trade set ups. Devised by Welles Wilder in 1977, the Relative Strength Index (RSI) is one of the best known technical indicators. The RSI is a momentum oscillator measuring the rate of price change. The RSI can help a trader identify when price is overextended in one direction or another; these levels are generally accepted as overbought or oversold. I myself have been using it for OB and OS levels and looking for price patterns in RSI, which I find give you a sort of a forewarning. Another good way is to look for Divergences (Regular & Hidden) in RSI. However, the RSI is much more than a simple overbought/oversold indicator. It can be used to anticipate trend change and identify high profit, low risk trade opportunities. Andrew Cardwell, president of Cardwell Financial Group Inc. has taught his RSI course to many individual traders across America and Europe. Following are the concepts he uses while using RSI in trading.

TREND ANALYSIS WITH MOVING AVERAGES

1. Close Price
2. RSI Value
3. Simple (S), Weighted (W), Exponential (E)
4. Suggested Values for Moving Averages to be applied to both the Price and the RSI:
1. Standard (Intermediate-Long Term) 9 & 45 (S/W/E)
2. Short Term 4/20 (S/E)
3. Short Term Overbought/Oversold SMA 3 (RSI 3)
5. Guide Lines for Moving Average Interpretation
1. RSI Positive (+)/ Close Positive (+)= Trend is Up
2. RSI Negative (-)/ Close Positive (+)=Trend is Sideways /UP
3. RSI Positive (+) / Close Negative (-)=Trend is Sideways/ Down
4. RSI Negative (-) / Close Negative (-)=Trend is Down

*Here RSI Positive and Close Positive mean that both the RSI and Price are trading above their respective moving averages and vice versa in case of negative close.

BASIC TREND ANALYSIS GUIDELINES USING RSI

Uptrends	Downtrends
1. 80 – 40 RSI Range	1. 60 – 20 RSI Range
2. Bearish Divergence	2. Bullish Divergence
3. Positive Reversals	3. Negative Reversals
4. Spike Bottoms (RSI & Price)	4. Spike Tops (RSI & Price)
5. Moving Averages Positive (Close, S9 > W45	5. Moving Averages Negative (Close, S9 <>
6. Moving Averages Positive (RSI, S9 > W45	6. Moving Averages Negative (RSI S9 <>
7. Intermediate Moving Averages Positive: EMA45 (RSI) > 50 Level Close > EMA45 (Close)	7. Intermediate Moving Averages Negative: EMA45 (RSI) > 50 Level Close > EMA45 (Close)

I hope the above piece is useful to readers, I just share what I feel can be of some interest to people the way it has been to me. Some basic reading about RSI can be done here.

A good trader has to have three things; a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility...Michael Steinhardt

Federal Reserve Raises Discount Rate

The Federal Reserve Board on Thursday announced that in light of continued improvement in financial market conditions it had unanimously approved several modifications to the terms of its discount window lending programs.

Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve’s lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy, which remains about as it was at the January meeting of the Federal Open Market Committee (FOMC). At that meeting, the Committee left its target range for the federal funds rate at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent. This action is effective on February 19.

In addition, the Board announced that, effective on March 18, the typical maximum maturity for primary credit loans will be shortened to overnight. Primary credit is provided by Reserve Banks on a fully secured basis to depository institutions that are in generally sound condition as a backup source of funds. Finally, the Board announced that it had raised the minimum bid rate for the Term Auction Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF auction will be on March 8, 2010.

Easing the terms of primary credit was one of the Federal Reserve’s first responses to the financial crisis. On August 17, 2007, the Federal Reserve reduced the spread of the primary credit rate over the FOMC’s target for the federal funds rate to 1/2 percentage point, from 1 percentage point, and lengthened the typical maximum maturity from overnight to 30 days. On December 12, 2007, the Federal Reserve created the TAF to further improve the access of depository institutions to term funding. On March 16, 2008, the Federal Reserve lowered the spread of the primary credit rate over the target federal funds rate to 1/4 percentage point and extended the maximum maturity of primary credit loans to 90 days.

Subsequently, in response to improving conditions in wholesale funding markets, on June 25, 2009, the Federal Reserve initiated a gradual reduction in TAF auction sizes. As announced on November 17, 2009, and implemented on January 14, 2010, the Federal Reserve began the process of normalizing the terms on primary credit by reducing the typical maximum maturity to 28 days.

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC’s 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve’s primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.

Technical Analysis HandBook

Today more and more investors are warming to the fact that psychology moves markets and therefore fundamental analysis, which fails to properly measure mass investor psychology, must be flawed.

Who can blame them? After all, fundamental analysis — based on past company earnings, rating agency projections and the like — proved to be of little value during the bust.

There is a better way.

Many investors who monitor investor sentiment readings, study Elliott wave patterns and employ other powerful technical indicators were — at very least — able to position themselves to survive the recent decline. Still others were able to turn crisis into opportunity and profit from the volatility.

How’d they do it?

Technical analysis.

You see, technical indicators remove the cloudy, bias-driven assumptions from your analysis and focus on the one thing that moves markets: investor psychology.

Past performance is not indicative of future results — and that’s where fundamental analysis goes wrong. It fails to factor in the psychology that not only moves markets up and down but also leads analysts to extrapolate the current or past trend into the future. That’s why fundamental analysts almost always miss major tops and bottoms.

Folks over at Elliott Wave International employ the largest team of technical analysts in the world. They recognize that optimism peaks before market tops and pessimism troughs before market bottoms. They use powerful and sometimes unconventional tools to help identify psychological extremes that signal high-probability turning points.

EWI’s brand-new 50-page eBook, The Ultimate Technical Analysis Handbook, will show you the various methods of technical analysis they use every day and teach you how to use these powerful tools for yourself.

If you’re a technician, this eBook is perfect for you. If you’re a fundamentals follower, it’s more important than ever that you give technical analysis a closer look. Even if you never completely abandoned your fundamental indicators, you WILL benefit from drawing on these valuable technical tools.

Learn more about this free eBook, and download your copy here.

TRADE TO WIN

“Trading to win” means surrendering to the moment without trying to control it. It means to let go of fixed preconceptions about what you must do, and to liberate your self-conscious sense of self and selfprotective thoughts, which color the way you experience life and the market. When you can do this, you are in the here and now of your trading, and can bring your maximum potential to bear on the tasks before you.

17-FEB-2010

TOTAL PTOFIT - 12600 + 8000 + 4800 = 25400



*AXIS BANK 450 SHARES IN ONE LOT = 12600

*ONMOBILE BOUGHT 200 SHARES = 8000

*AMTEK INDIA BOUGHT 1000 SHARES = 4800

SCRIPT	RECOM PRICE	TARGET	BOOKED PRICE
AXIS FUT	1041	1073	1069
ONMOBILE	380	420	415
AMTEK IND	68.50	80	73.30

GOLDEN RULES

1. Divide your capital into few equal parts (preferably 10), never risk more than one part of your capital on any one trade.
2. Trade only in active & high volume stocks/ futures.
3. Always use stop-losses and never over-trade and stick to your risk management rules.
4. Never let profit turn into a loss. Use trailing stops to protect and lock your profits.
5. Never get into the market because you are anxious from waiting, and never get out of the market just because you have lost your patience.
6. Do not guess where the top and bottom of the market is, but let the market signal its top and bottom.
7. Never average a loosing trade, also avoid taking small profits and big losses.
8. Only trade with genuine risk capital, and be aware of the risk of losing.
9. Always trade within your capabilities, financial and otherwise.
10. Never let greed or fear take control over your winning positions.
11. Avoid Tips & Rumors. This are spread by people with vested interests.

TYPES OF TRADING

There are several types of trading styles that persons seeking to profit from short term trades in the market may wish to use. Here is a brief description of the most widely used short term trading styles.

• Day Trading

Day traders buy and sell stocks throughout the day in the hope that the price of the stocks will fluctuate in value during the day, allowing them to earn quick profits. A day trader will hold a stock anywhere from a few seconds to a few hours, but will always square off all of those stocks before the close of each day. The day trader does not own any positions at the close of any day therefore immune to overnight risks. The objective of day trading is to quickly get in and out of any particular stock for a profit on an intra-day basis.

Day trading can be further subdivided into a number of styles, including:


Scalpers: This style of day trading involves the rapid and repeated buying and selling of a large volume of stocks within seconds or minutes. The objective is to earn a small per share profit on each transaction while minimizing the risk.


Momentum Traders: This style of day trading involves identifying and trading stocks that are in a moving pattern during the day, in an attempt to buy such stocks at bottoms and sell at tops.

• Swing Traders

The principal difference between day trading and swing trading is that swing traders will normally have a slightly longer time horizon than day traders for holding a position in a stock. As is the case with day traders, swing traders also attempt to predict the short term fluctuation in a stock's price. However, swing traders are willing to hold stocks for more than one day, if necessary, to give the stock price some time to move or to capture additional momentum in the stock's price. Swing traders will generally hold on to their stock positions anywhere from a few hours to several days.


Swing trading has the capability of providing higher returns than day trading. However, unlike day traders who liquidate their positions at the end of each day, swing traders assume overnight risk. There are some significant risks in carrying positions overnight. For example news events and earnings warnings announced after the closing bell can result in large, unexpected and possibly adverse changes to a stock's price.

• Position Trading

Position trading is similar to swing trading, but with a longer time horizon. Position traders hold stocks for a time period anywhere from one day to several weeks or months. These traders seek to identify stocks where the technical trends suggest a possible large movement in price is likely to occur, but which may not be fully played out for several weeks or months.

• Online Trading
  

Online trading is not really properly described as a trading style. Rather, online trading is simply a term that refers to the medium used to enter and execute trades. Online traders, which can include long term investors, as well as day, swing and position traders, use either an Internet connection or a direct access online trading platform to access and execute trades with Web based brokers.

NIFTY PLATINUM CALL

NIFTY PLATINUM CALL BOUGHT AROUND 4800 TODAY BOOKED AROUND 4890 FLAT 90 POINTS PROFIT IN TODAY'S TRADE