counter trend

Prepare for another countertrend. When the countertrend rally started out in 2009 I did not expect too much action and expected it to be a retracement of the previous fall. It retraced 99%. Now again after 1 year of channeled behavior the Nifty has a positive divergence on the weekly RSI and is ready for a countertrend move. Channel breakouts are ferocious. So first while the lower end did not break as I was expecting now the upper end is at risk. A breakout would be on a close above 5320. Above that the implications would be of a 61.8% retracement of the entire fall from the 2010 high to the 2011 low giving a target of 5674. 50% would be 5447 which would also be a testing period.

Channel breakout rallies are often vertically upwards. With few small halts despite negative divergences they can continue upwards. Two examples are below from 1996 and 1997. 1997 appears more like what we see today in fact even count wise its a good alternative to fit where an expanded flat results in a 5 wave impulse rally which is why channel breakouts are the Bubbliest. In 1997 78.6% retracement was achieved in that move. A similar retracement today would take Nifty to 5980. While I write this the weekly momentum indicators confirmed a buy with a close above the 20week average. An expanded flat would answer the problems of counting the last leg between Oct and Dec and allow for an impulse count for the current rally from the lows. The question whether this means a new bull market has started, will remain with investors; I cant answer that right now. A strong rally is building and will continue for some time to come with little respite. 

This alternate of an expanded flat is shown below on the current price data. This alternate allows me to stick with my B triangle structure where C=A and then followed by an expanded flat. For channels a equal to the size of channel projection upwards is an old way of setting a target and it comes pretty high at 6170 almost near the all time highs. This would be the best case scenario. For traders it should be a great trade and I will keep an eye each level from the first target of 5260 for risks of failure but the above evidence puts high probability of breakout of channel on upside now.

 

If it was not for the seasonal bearishness of January I should have been able to take this call earlier as A/D shown below reached near oversold levels and that indicates one sentiment extreme. Now that we have hit this point markets could remain bullish till at least March if not April/May. Speed and time will be two aspects to watch. Till then most sentiment indicators will have cooled off.

The most bearish alternative to the above scenario is that the market stalls at the upper end of the channel near 5260-5300 and starts its next leg down. This I discussed last week in the expanded flat or complex corrective alternate. However stocks show the possibility of a larger degree X wave that can happen and the evidence above adds to that so let me end the note with one final alternative the least bullish one to watch. This shows wave B in formation as an expanded flat. Earlier I thought B was over at the Dec high but it failed to follow through from there. Now B as an expanded flat from the Nov low allows for a 5 wave rally to 5260-5300 near the upper channel line or weekly Bollinger band. If this is still the case we will see a top there. That will be the first level to watch our for selling pressure to emerge.

Steps in Goal Based Investing

Goal Based Investment means saving for specific goals. Following are the steps to be followed (Don’t worry – I would explain each step in detail):

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§  Think of major events in your life which would have a significant
financial implication, and for which you would like to save.

§  Find out the cost of achieving these goals today.

§  Determine how far away these goals are from today (in years).

§  Determine the cost of achieving these goals at the target time using an
approximate but conservative rate of inflation.

§  Determine the after-tax rate of return you can achieve when you invest today.

§  Arrive at the per-year and per-month investment necessary for each goal,
if needed.

§  Start investing today, specifically for these goals!

RETIREMENT

From the time you graduate to the time you retire, you'll have earned hundreds of paychecks. Now just give it a deeper thought.

You had hundreds of opportunities for saving and investing for your retirement. All you had to do was to grab those opportunities.

So how many cheques have you put aside for your future? None, you say? Well, there are hundreds of others 30-something Indians giving you company. Well, certainly not a thing to be proud of but at the same time you must not get perturbed. Most people in their twenties and thirties have a horde of other things on their minds like car loan repayment, or paying off that atrocious educational loan, or even their monthly house rent (which is becoming dearer by each passing day). But does that mean that you can wait until the last minute to start saving?

You Must Start Today

It's perfectly understandable that you have a lot of liabilities at the moment, but then, you should do some meticulous planning to take out a small chunk of the pie and save it for the future. In order tokickstart the planning, you should be clear about the amount of money you'll need to save (and invest). Now, to reach that figure, you'll need to estimate three important factors, which are as follows:

1. Your Age of Retirement

Most people dream of calling it a day by the age of 55 but most of them end up stretching to the age of 60 and some even go as high as 65. So you should pick up 60 as a retirement age to be on a safe side. And if you feel that you still haven't saved enough by the time you hit 60, you have a buffer of another five years to fill the pot.

2. Estimated Lifespan after Retirement

Well, it's harsh but then it's a reality. Death is inevitable. By the time you hit 40, you would have a fair bit of idea about how long you would live (depending on your health conditions, personal habits etc.). But you must not underestimate your lifespan for the simple reason that you would not want your bank account to run dry while you still have another 10 years to live. Generally, there'll be no harm in assuming that you'll until 90 years. This means that if you plan to retire at 60, you'll need a cash reserve big enough to last you for another 30 years.

3. Annual Funds Required after Retirement

You need to do an estimation of what your post-retirement annual budget should be in order to maintain a decent lifestyle. You must keep these expenses in mind: medical care, medicines, insurance, rent, weddings of your children (if they're getting married late), travel (essential and vacations), gifts for your grandchildren, and unexpected emergencies. Now the biggest catch here is the monster called “inflation”. Remember that Rs 1000 of the present times will not buy you the same things after 30 years or so.

So once all the homework is done, it's time to put the plan into action. Start saving NOW. Procrastination will only make things worse for you. Here are a few handy tips:

1.        Scale down your lifestyle. Cut down on excesses. When you get a bonus, save it (at least a big part of it) rather than squandering it off on a luxury bash.

2.       Maximize your contribution to the retirement plans.

3.       Seek professional advice before investing in stocks, mutual funds, insurance plans etc. Don't go only by hearsay, advice from your friends and family or mere guesswork.

4.       Pay off credit card bills as soon as possible. Don't let them become an “albatross in the neck”.

5.        Delay your retirement if possible.

The key to have a prosperous post-retirement life is to start saving NOW if you haven't started already

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