As I watch the markets soar in almost all asset class, seems like a Deja Vu… Market goes in a gut wrenching tailspin and then a violent snap back, I almost saw it coming and noted earlier in my blog post here. How did I know the bounce was coming, well I didn’t know it exactly, I just thought it was a high probability event, the market could as easily have gone 20% lower.

Silver up 77% year to date( $15.65/ Oz), crude up 45% ( $66.50/barrel), emerging markets anywhere from 45 to 75% , Dow Jones, S&P, Nasdaq all have bounced noticeably from their nadir made in the beginning of this year. Similarly German DAX has bounced from 3600 to 4900, Hong Kong HSI from 10600 to 18000+. All the currencies have rallied sharply – GBP from 1.35 to 1.62, Euro from 1.23 to 1.42, Canadian Dollar from .75 cent to .92 cents, Indian Rupee from 52 to 46. At $980/oz Gold is about to challenge its previous high of $1050/oz. The long term reader of this blog know I have been bullish on precious metals for a long time, I eagerly wait Gold to take out $1050 and move to new highs!

If you thought all was honky-dory, well not so quick! There are some noticeable markets which have gotten clobbered and so have some iconic stocks.. GM is still preparing for a bankruptcy filing as soon as this Monday, end of an era according to some. Natural Gas at $3.65/ Million BTU is 35% down for the year, I knew there’s supply glut in this market, but this kind of price weakness, I find hard to explain, given that all other major commodities have nicely moved off their bottom. Same deal with Treasury bonds, boy what a huge sell off. Fed has kept its overnight lending rate between 0 and .25% since last December, which kind of made the bond investors complacent . No wonder, what appeared like small profit taking in the beginning of this year, has turned into a complete run for the exits. The 10 year yield has made a complete U turn reversal, from a 2% yield in the beginning of the year, it has rocketed to a recent high of 3.75%, an almost doubling. The bond investors have really taken a hit on their chin, a complete opposite of the healthy return they enjoyed last year.

I am a follower of technical analysis, my thought process is always around probabilities and I am ready to bail out when market does not behave as I expect it to. Seems simple..right, but it is tough to follow, it runs contrary to human mental makeup. Human’s have a predisposition to hope, but in markets hope could be your worst enemy. Similarly logical thinking, intelligence, not accepting defeat is considered a virtue in life and we certainly expect that from our leaders. The same trait can turn out to be very dangerous in market. You start to think, you are very intelligent logical thinker, how can you possibly get it wrong, and you take this high-headedness to the market. Rest assured the market is going to humble you very soon, it could be a very sobering place. I have been there, I know first hand, now I am a life long student of markets, and hopefully it will pay off.

Markets are all about getting your hands around the uncertainties, accepting risks, accepting frequent defeats and moving on. It is not a sprint, it is a marathon, you need to conserve your energy and capital to outlast the market volatility. Lose the small battle but win the war. Lose your ego, but not your capital, cut your losses and run. Use your left brain but not to predict market moves and stubbornly wait for vindication while the market decimates your account. Instead use your left brain to map out scenarios, what if games, what are your profit targets, what is your game plan, what kind of market move will prove you wrong and you will close the position. What kind of risk management you will employ- fixed dollar loss, fixed percentage loss, break of trend line, adverse move of greater than 2.5 ATR ( Average True Range), break of Bollinger bands, break of Keltner channels, break of moving averages, non confirmation from other indicators, deteriorating market internals….pick your favorite and have a strategy in advance and then the courage of convictions and discipline to follow your strategy. Do not start to second guess your risk management decisions and get in hope mode…I will make the exception only this time..nope, bad idea! You never know when an innocent move can snowball into a carnage. As in life, so in markets, a well thought out strategy has a high chance of working..have one!!

I read a nice book on risk management by ken Grant called Trading Risk. You can read my review of this book on Amazon here. Ken likes to call money spent on managing risk really an investment rather than a liability. Just like we take out insurance policies, protecting ourselves from situation beyond our control, same deal with spending money on risk management, it protects your capital..and if you have the capital, you can comeback and play a second inning or third or fourth…you get the idea. Risk Management has never been more important than today given there is no place to hide in an adverse market move. Diversification which can be a good risk mitigation strategy turned out woefully inadequate in the bear market of 2008 where every single asset class spiraled down in a highly correlated way. Risk Management would have been the only tool to really save you from yourself.

Once again, I like to put my usual disclaimer, none of the above should be considered a recommendation to buy or sell any asset class. The opinion here are solely my personal and is not intended to be a professional advise. Investing is a “Risky Business” ( à la Tom Cruise.. topic of another blog ). All I am trying to do here is to help you make smart decisions, it does not take away your own due diligence in any investment you make.

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As I watch the markets soar in almost all asset class, seems like a Deja Vu… Market goes in a gut wrenching tailspin and then a violent snap back, I almost saw it coming and noted earlier in my blog post here. How did I know the bounce was coming, well I didn’t know it exactly, I just thought it was a high probability event, the market could as easily have gone 20% lower.

Silver up 77% year to date( $15.65/ Oz), crude up 45% ( $66.50/barrel), emerging markets anywhere from 45 to 75% , Dow Jones, S&P, Nasdaq all have bounced noticeably from their nadir made in the beginning of this year. Similarly German DAX has bounced from 3600 to 4900, Hong Kong HSI from 10600 to 18000+. All the currencies have rallied sharply – GBP from 1.35 to 1.62, Euro from 1.23 to 1.42, Canadian Dollar from .75 cent to .92 cents, Indian Rupee from 52 to 46. At $980/oz Gold is about to challenge its previous high of $1050/oz. The long term reader of this blog know I have been bullish on precious metals for a long time, I eagerly wait Gold to take out $1050 and move to new highs!

If you thought all was honky-dory, well not so quick! There are some noticeable markets which have gotten clobbered and so have some iconic stocks.. GM is still preparing for a bankruptcy filing as soon as this Monday, end of an era according to some. Natural Gas at $3.65/ Million BTU is 35% down for the year, I knew there’s supply glut in this market, but this kind of price weakness, I find hard to explain, given that all other major commodities have nicely moved off their bottom. Same deal with Treasury bonds, boy what a huge sell off. Fed has kept its overnight lending rate between 0 and .25% since last December, which kind of made the bond investors complacent . No wonder, what appeared like small profit taking in the beginning of this year, has turned into a complete run for the exits. The 10 year yield has made a complete U turn reversal, from a 2% yield in the beginning of the year, it has rocketed to a recent high of 3.75%, an almost doubling. The bond investors have really taken a hit on their chin, a complete opposite of the healthy return they enjoyed last year.

I am a follower of technical analysis, my thought process is always around probabilities and I am ready to bail out when market does not behave as I expect it to. Seems simple..right, but it is tough to follow, it runs contrary to human mental makeup. Human’s have a predisposition to hope, but in markets hope could be your worst enemy. Similarly logical thinking, intelligence, not accepting defeat is considered a virtue in life and we certainly expect that from our leaders. The same trait can turn out to be very dangerous in market. You start to think, you are very intelligent logical thinker, how can you possibly get it wrong, and you take this high-headedness to the market. Rest assured the market is going to humble you very soon, it could be a very sobering place. I have been there, I know first hand, now I am a life long student of markets, and hopefully it will pay off.

Markets are all about getting your hands around the uncertainties, accepting risks, accepting frequent defeats and moving on. It is not a sprint, it is a marathon, you need to conserve your energy and capital to outlast the market volatility. Lose the small battle but win the war. Lose your ego, but not your capital, cut your losses and run. Use your left brain but not to predict market moves and stubbornly wait for vindication while the market decimates your account. Instead use your left brain to map out scenarios, what if games, what are your profit targets, what is your game plan, what kind of market move will prove you wrong and you will close the position. What kind of risk management you will employ- fixed dollar loss, fixed percentage loss, break of trend line, adverse move of greater than 2.5 ATR ( Average True Range), break of Bollinger bands, break of Keltner channels, break of moving averages, non confirmation from other indicators, deteriorating market internals….pick your favorite and have a strategy in advance and then the courage of convictions and discipline to follow your strategy. Do not start to second guess your risk management decisions and get in hope mode…I will make the exception only this time..nope, bad idea! You never know when an innocent move can snowball into a carnage. As in life, so in markets, a well thought out strategy has a high chance of working..have one!!

I read a nice book on risk management by ken Grant called Trading Risk. You can read my review of this book on Amazon here. Ken likes to call money spent on managing risk really an investment rather than a liability. Just like we take out insurance policies, protecting ourselves from situation beyond our control, same deal with spending money on risk management, it protects your capital..and if you have the capital, you can comeback and play a second inning or third or fourth…you get the idea. Risk Management has never been more important than today given there is no place to hide in an adverse market move. Diversification which can be a good risk mitigation strategy turned out woefully inadequate in the bear market of 2008 where every single asset class spiraled down in a highly correlated way. Risk Management would have been the only tool to really save you from yourself.

Once again, I like to put my usual disclaimer, none of the above should be considered a recommendation to buy or sell any asset class. The opinion here are solely my personal and is not intended to be a professional advise. Investing is a “Risky Business” ( à la Tom Cruise.. topic of another blog ). All I am trying to do here is to help you make smart decisions, it does not take away your own due diligence in any investment you make.

It’s been a while I wrote a blog post! Needless to say been busier than usual…what with the 24/7 election coverage , client deadlines, finishing up reading some of the books on my wish list and so on. Talking about the elections, as you can imagine, being a long term Barack Obama supporter, I am overjoyed on his success. His victory felt so personal in many ways, and I sure felt as if I owned a piece of this campaign. I hope this election will go down in history as one of the turning points for US politics- record participation of youth, record amount of money raised, unleashing the power of web, record voter turnout, record number of earlier voting, record minority and ethnic participation..the list goes on. I know the pundits will be analyzing this for years to come as to why he won, but for most part I think he won because of his superior organizational capabilities, his disciplined campaign, his inclusive nature of campaign, his consistent strategy based on “change we can believe in” and his steadiness in the face of highs and the lows of the campaign. With every challenge, whether thrown at him by Hillary Clinton or John McCain or Sarah Palin, he emerged out even stronger , not by hitting back, but by appealing to the sense of higher purpose within all of us. I also noticed he never grew complacent although he was leading in the polls all along. He kept appealing to the supporters, work hard as if everything depends on the last few days, he warned them sarcastically not to underestimate Democrats ability to snatch defeat from the jaws of victory ( an obvious reference to failed Presidential bid of Al Gore in 2000 and John Kerry in 2004). One can learn a lot from this campaign which ran like a well oiled machine. The time tested formula of discipline, strategy, fighting complacency, even temperament and relentless efforts once again paid the dividend. Mr Obama will be inaugurated as the 44th President of United States in January 2009, and I look forward to seeing him in the Office! I hope he keeps the humility and humbleness he demonstrated all along the campaign and puts the country first and delivers the changes he promised so vociferously!!! Mr Obama you are under watch by a nation eager for change!!!

>
It’s been a while I wrote a blog post! Needless to say been busier than usual…what with the 24/7 election coverage , client deadlines, finishing up reading some of the books on my wish list and so on. Talking about the elections, as you can imagine, being a long term Barack Obama supporter, I am overjoyed on his success. His victory felt so personal in many ways, and I sure felt as if I owned a piece of this campaign. I hope this election will go down in history as one of the turning points for US politics- record participation of youth, record amount of money raised, unleashing the power of web, record voter turnout, record number of earlier voting, record minority and ethnic participation..the list goes on. I know the pundits will be analyzing this for years to come as to why he won, but for most part I think he won because of his superior organizational capabilities, his disciplined campaign, his inclusive nature of campaign, his consistent strategy based on “change we can believe in” and his steadiness in the face of highs and the lows of the campaign. With every challenge, whether thrown at him by Hillary Clinton or John McCain or Sarah Palin, he emerged out even stronger , not by hitting back, but by appealing to the sense of higher purpose within all of us. I also noticed he never grew complacent although he was leading in the polls all along. He kept appealing to the supporters, work hard as if everything depends on the last few days, he warned them sarcastically not to underestimate Democrats ability to snatch defeat from the jaws of victory ( an obvious reference to failed Presidential bid of Al Gore in 2000 and John Kerry in 2004). One can learn a lot from this campaign which ran like a well oiled machine. The time tested formula of discipline, strategy, fighting complacency, even temperament and relentless efforts once again paid the dividend. Mr Obama will be inaugurated as the 44th President of United States in January 2009, and I look forward to seeing him in the Office! I hope he keeps the humility and humbleness he demonstrated all along the campaign and puts the country first and delivers the changes he promised so vociferously!!! Mr Obama you are under watch by a nation eager for change!!!