Why are the markets falling? A hot topic at all places you got to. Most say, "All these scams are the culprit. My broker had said to believe in the India growth story . There was no way the market could have fallen if all these scams had not been unearthed".
So, are scams the reason why markets are falling? Well, simply put, prices never rise in straight line up, so it had to fall to keep with the up-down-up-down action. On a serious note,I would say Yes, the scams are responsible but, purely as a catalyst because short term ups and downs are entirely based on emotions. So when scams are unearthed fear sets in and the short term traders who have wanted to make a quick buck, panic.
We have had a spew of scams decending heavily on us faster than the markets have done.Can't list it .There are way too many, sadly.
Let us look at LIC Housing Finance which was performing extremely well over the past year cracked by almost 40% in 2-3 days as its MD got arrested for taking bribes. The stock itself is good fundamentally but fear led to panic and the panic into a huge fall. Could an investor/trader have saved him/herself from taking the whack? Yes, if technicals had been studied and used strictly. Study the LIC Housing Finance stock charts below.
Daily Chart of LIC Housing Finance Ltd.
Date of announcement of the scam was on 24th November 2010 and the stock took a hit of about 25% on that day. But if you had followed the technicals on the stock then there were enough warnings about an impending fall.
- Top made on 29th September with a bearish candle .
- Sideways movement thereafter indicating strength waning
- Oscilltors in negative divergence since the top.Macd in sell from 8th October.
- Breakdown from sideways movement on 15th October .
- A lower top on 28th October. Started underperforming the nifty which went on to make a new high on 5th November 2010.
- A lower low on 19th November confirming the lower top.
The technicals were screaming at you that there were possibilities of an impending fall. Prudence would want you to book partial profits and tighten your stops at each such alert.
To reiterate, technicals if followed right can keep you in and out of the market at nearly appropriate times.
Technical Analysis Jai Ho !
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Happy Trading !!
Lakshmi Ramachandran
www.vipreetsafetrading.com
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