Traders Carnival: JC Parets – A Holistic View Of The Indian Markets



before having me here DJ for inviting me I just want you guys to know what an amazing treat this is for me I have been very very fortunate throughout my life and really throughout my career yes that's okay there are rules here so you know I wake up every morning and I really am thankful for all the opportunities that have had throughout my life people earlier in my career who didn't have to help me helped me and taught me and I guess I was just aware enough to keep my mouth shut and just listen to it smarter people had to say so a lot of the things that you're gonna hear me say today in fact probably over 90% of the things that you're going to hear me say today are things that I learned from other people these are some of the biggest legends in the history of Wall Street people like Ralph akan pora and Louise Yamada and Alan Shaw that when I was younger 20 to 23 years old I looked up to as mentors and fast forward 15 years later and now they're my friends and I've been able to travel throughout the world and give presentations similar to this in Hong Kong and the Philippines in Kuala Lumpur and Singapore Tokyo and I've been able to meet great friends like Vishal and Akshay and DJ and many of you here today and just so you know I'm going to be here for the next several days so any questions that you might have feel free to come up I mean you guys are already coming up and asking me questions so just understand that at any point feel free if we ever get a presentation up I get to stand here all day and just tell you stories but what we're gonna do today is that we're going to talk about the you know people say well JC how did they take my waters they took my waters what we're gonna do there we go thank you what we're gonna do today is we're gonna talk about process you know when I wake up on Monday morning or on Saturday morning you know where does it all begin where do I start the process of finding a stock to buy or a stock to sell and then once we explain the entire process tomorrow night DJ was nice enough to invite me to host the all-night open bar session which I'm happy to do I've never done anything like that but I'm pretty sure we'll be good at it you know we'll have a few beverages and talk about charts and I'll be there all night and we could rip through thousands of charts we'll look through the mid caps and the small caps and the large caps we'll look at international foreign markets because that's really where it all begins in the foreign markets are we able to get the presentation oh here we go so tomorrow we'll really go over all the different markets that we look at today we'll look at some stuff like the nifty Bank index and the nifty 50 and things like that but today is gonna be more about process it's more gonna be about the how and the why and tomorrow is gonna be more about okay now let's go so at any point if I start talking too fast sometimes when I get talked about charts I get all excited and I lived in New York City for a long time so I talked really fast so if you guys need me to slow down just start waving your hands like this and that's the signal Jacy calm down there's just charts okay oh here we go you guys can see that okay not there the one over here is not working yet well at least we have one one's better than nothing right I don't think this is very stable there you go it's a little bit cut off but I think we can make it work better right okay well at least we have one so we'll get going until we can figure that out okay perfect all right so like I said if I started talking too fast just start waving your hands in the air so a little bit about me I started trading when I was 21 years old and like many of you when you first started you thought you knew everything right and then you start losing money and you realize you know nothing and I think the most important lesson I probably learned is that we don't know anything that's going to happen next we don't know what's gonna happen in the next several minutes or several days or several weeks or several months we might have a very good inclination of what we think might happen but the first thing that we need to do is be aware that we have absolutely no idea what's going to happen next and check your ego at the door right there's no room for egos when it comes to trading because remember we're not here to be right we're here to make money those are two completely different things and I learned that the hard way and I think that in the markets we need to learn lessons the hard way we all you know they say that you're not really a traitor until you take that big hit when you get that feeling in your stomach like oh you know when you when you make a bad trade and you know men my predecessors call that your tuition and until you get that you until you pay that tuition and get that that kick in the stomach because you didn't manage risk properly until that happens you're not part of the club but many of us are already are and we learned that the hard way so I went to school in Connecticut and I had the opportunity to intern at Merrill Lynch this was a big company way back 15 years ago and that is really what got me into the business I guess this is not if we could do this one I think this is gonna be better here I'm not sure whose computer this is any of the IT guys yeah do any of the IT guys you guys are way better at this than I am I look at charge so I don't know anything about computers see how good you are see everyone's so helpful Thank You f5 alright that's good enough all right so basically just fast forward real quick so we can get into the charge you know I was 23 years old and I really just didn't realize I I didn't really know what I was doing so I looked at my elders people twice my age three times my age and these people really thought that they knew something about the market they thought they were doing their clients a good service and I guess I was aware enough to realize that these people didn't know anything and it really scared me and I didn't want to end up like that when I was that age so I kind of hit the fork in the road do I study for my CFA and learn fundamental analysis and learn how to analyze companies or do I study for my CMT and learn about technical analyst analysis and learn how to analyze stocks and I guess at the time it seemed like an easy decision I didn't care about companies I wanted to learn about stocks so I went the technical analysis route and I started reading all of these books one by one and a couple of these I've read several times a lot of you guys maybe have read Edwards and McGee did John Murphy books the candlestick I suggest reading all of these and I'm gonna offer my slides to everybody afterwards so feel free if you want to take notes go for it but understand that I'm gonna provide all of these slides and I highly recommend all of these books for short so I passed all three levels of the CMT and in 2010 I was lucky enough to start a financial blog about technical analysis called all star charts calm and very in within a very short period of time I start getting phone calls from Bloomberg and CNBC and Fox and all of the networks and they wanted me to come on TV and talk about my charts so I was like sure so I didn't started getting phone calls from the biggest hedge funds and the biggest mutual funds and banks around the world that they wanted to pay me for my research and I said I'm doing all this homework anyway sure you can buy my research so now fast-forward to 2018 and pretty much all the biggest banks most of the biggest hedge funds pay us for our research when it comes to stocks and fixed income and currencies and commodities so our customers are some of the biggest investors in the whole world but our price point is low and where individual investors can participate too so our customers are able to get technical analysis research that all the big boys are getting everyone's getting the same research so before I get into it just understand that anything I say here today and tomorrow should not be construed as any sort of buy or sell recommendation these are not any sort of solicitation to invest in any hedge fund that I manage so this is strictly for informational and educational purposes alone I think you guys know that but I just want to make sure that we reiterate that and you can go to all star charts that in and you can see all of the details there so when it comes to the market some people like to make their lives complicated I like to make my life simple keep it simple stupid right that's that's the my whole mantra and you know we're all in this business we all trade and we see some of these charts and we see people that make this very very complicated but not me what do we want to do we want to identify the direction of the primary trend that's what we're most interested is the stock going up or is the stock going down right and what direction is it going we want to analyze the behavior of supply and demand we don't care how many shoes or automobiles the company sold we care what the buyers and sellers are doing from the stock perspective of that company we when I talk to my customers like I said my customers are some of the biggest hedge funds in the world in some cases and I talked to these traders every day these guys are looking for two things relative strength and momentum that's what they're looking for so we have a choice as investors we can fight the biggest money in the world or we can join them and be aware of what they're doing and do the same thing and follow them into the trades right we want to we say say if you can't beat them join them right so that's what we're gonna do and what we're gonna talk about today we're gonna talk about sector rotation we're gonna talk about equally weighted charts versus market cap weighted charts I'm gonna touch on Fibonacci analysis which we can nerd out a little bit with the math if you'd like later on and the one thing that I want to reiterate is that there is no one magic indicator there's no one signal I know a gentleman yesterday talked about Viwa volume weighted average price it was you know that's an excellent tool i know we've looked at some other tools market profile and things like that all of those are tools right there's no one magic bullet there's no crystal ball so what we want to do is we want to weigh all of the evidence we want to make a weight of the evidence conclusion and in order to make a responsible weight of the evidence conclusion we have to weigh all the evidence right that is the responsible thing to do people make fun of me they're like JC you look at 5,000 charts a week why do you do that I'm like why do you not do that right that's that's the way to do it you put in the work so then here's this is this is the process right this is what we call the top-down approach okay and what I mean by top-down is the first thing that we want to do is we want to pretend that we're on the moon and we're standing on the moon and we want to look at the whole world from a global perspective I don't care if you live in America or in Europe or in India or in Africa global markets are so intertwined and with every day that passes stock markets around the world are becoming more and more intertwined so regardless of what country you live in in my experience looking at the entire global stock market is really where this all begins and it really helps give you a perspective of the underlying trend so what we want to do is we want to look at the international markets then we want to look at the markets in the country that we live in so if you live in America you look at the S&P 500 and the Dow Jones Industrial Average if you live in India you want to look at the Sensex and then FT 500 and the nifty 50 right once we get global perspective then we come to our individual country then we want to break it down and look at the individual sectors and industry groups energy industrials financials Pharma IT and then ultimately once we identify the trends of the global markets the domestic indexes and find where the strength and the weakness are in the individual sectors that is when we identify which stocks within those strongest sectors are the ones we want to buy right or which stocks within the weakest sectors are the ones we want to sell right remember institutions are looking for momentum and relative strength so I know that it's cut off a little bit but just take my word for it what we're seeing here is a list of all of the global markets that I look at right so we're looking at developed markets emerging markets right and then notice how on each index right whether it's Hong Kong or Belgium or Spain or Malaysia we're looking at all of them on both a weekly and a daily timeframe that is what's called a multiple time frame approach I know some of you here are day traders so and I know some of you are longer-term investors so what I've learned is that it's always best to go one timeframe higher than where you trade right so me personally I have identified my personal time horizon which is the next several weeks and months I want to make money this quarter I don't care what happens today and I don't care what happens next year okay my time horizon is the next weeks and months everybody here is going to have a different time horizon different risk parameters and different overall goals of why you are in the market and before you enter the first trade you need to decide this is my time horizon we all know that guy who enters a trade and because he's wrong now it's an investment right we know we all know that guy don't be that guy okay if you say it's a trade make it a trade don't turn it into an investment and hope it comes back because you know what it's not coming back okay so here we're looking at the nifty 50 and what I want to talk about are a few things we have momentum we have some Fibonacci analysis and we've got some trend lines okay so and we're going to go over each of these tools in a minute basically what I want to identify here in the nifty 50 is that we are breaking out above a key level and we need to hold that level if we do not hold that level right there I can I can't see it very closely it's about ten thousand five hundred so ten thousand five hundred on the nifty 50 we're gonna talk about why that level is so important if we are not above ten thousand five hundred and the nifty 50 the risk is to the downside okay if we are above ten thousand five hundred and then ft fifty the risk is to the upside so once we look at the individual indexes themselves then we want to look at these sectors we want to look at IT pharma banks and break it down to the individual sector so what are we looking at here we're looking at the nifty Bank index and you can see it on both sides here this is on a weekly time frame and similar to the nifty 50 in this case we're looking at twenty five thousand five hundred on nifty Bank right and if we are not above that level the risk is to the downside and if we are above that level the risk us to the upside so notice how everything is on a weekly and then a daily time frame so if you're a day trader for example and you care what's happening on a minute-to-minute basis or ten minute time frames in order to get multiple time frame perspective we won't you want to look at the daily time frame right so the daily time frame daily candles or daily bars will be your long-term charts and then you'll look at the intraday for your that's your specific period right let's say you're a long-term investor right and you look at weekly charts well then in order to get longer-term perspective you want to look at monthly charts right so whatever your time horizon is you want to go one higher in order to get that multiple time frame perspective the longer term for structure and the shorter term for tactical purposes makes sense okay once we identify where the strong sectors are where the strong industry groups are then we go within that specific sector and see which are the stronger stocks within that sector so let's just say that we like the bank index right if the bank index is breaking out to new highs and we just that we want to buy bank stocks then we go within the banking sector to see which bank stocks do we want to buy is it axis is it ICICI right is an Indus in Bank which Bank if we want to be selling of a bad sector for example like Pharma farmers just have been the worst sector in India right so we want to then identify the weakness in pharma and then look within that sector at the individual stock to see which are the weakest stocks that we want to be selling so when you're looking at these sectors themselves it's important to identify what makes up that sector right what makes up the index and they're all different in India for example Financial Services represents 36% of the nifty 50 energy represents another 15% so basically half the entire index is two sectors right and it's different in every country in America for example technology represents 25% of the entire sp500 right energy represents just 6% so it's a major difference so when you're looking at the index in your country you want to see what the components of that index look like because remember this is not a stock market it is a market of stocks it's a big difference right so I guess this is cut off for some reason so you guys can't see the whole thing I would love to be able to show you guys the entire thing I guess we're having some luck now I guess it's not gonna work well oh here we go perfect Oh perfect you can see it on this side so here we're looking at the market cap weighted nifty Bank index right this is the bank nifty that all of us are looking at this is the traditional nifty Bank index on the top in green but at the bottom we are looking at an equally weighted index so what we did is we took all of the components of the nifty Bank index and instead of having some of the stocks represent a larger waiting we took every stock in the nifty Bank index and equally weighted them because that gives us better perspective as to what's actually happening in the sector as opposed to a few of the largest components which are driving that sector and what I thought was interesting is that in the cap weighted index of the Nifty bank we did not make a new high recently we put in a lower high but in the equally weighted nifty Bank index we made a higher high so what that suggests to me is that there is more strength in the underlying components of the nifty Bank index then the actual nifty Bank index would suggest which I found very interesting in India the reliance is basically 50% of the entire energy sector 1 stock which is similar in America we have Amazon which is a big consumer discretionary stock represents 25% of the entire sector but in India in energy one stock is half the entire sector so in order to see what energy is really doing and not just following what reliance does we want to look at the the cap weighted and the equally weighted and notice how the cap weighted looks ok but the equally weighted it looks like it's topping a little bit more than the market cap weighting so this would suggest to me that there is actually more weakness in the energy sector than the sector index would suggest right so it's additional information that we're getting by looking at equally weighted indexes not just the cap weighted index we always want to look at both so you'd be surprised how many people just ignore the underlying trend right markets by definition trend if a stock is going higher there is a much higher likelihood that it will continue to go up then just completely reverse and start to go down right that's just the way markets work markets trend you could look at charts going back a hundred years you'll find up trends you'll find down trends markets just trend to me first thing we need to do when we look at any stock or any index is identify the direction of the underlying trend is it going up or is it going down right and you'd be surprised how many people just ignore that stuff right just ignore the direction that's going you can give a chart to a four year old and the four year old will tell you yes daddy it's going higher or no mommy it's going lower but you look at somebody with a PhD you know who's 40 years old and a ton of Education and they will just completely ignore the underlying trend which is mind-boggling to me so up trends make higher highs and higher lows down trends make lower lows and lower highs and sometimes there is no trend and it is a sideways trend so unless you're one of these people who like to trade range-bound markets I personally have never found that to be successful in my world trading range bound markets that's just too hard for me I'd rather be buying stocks and up trends I'd rather be selling stocks and down trends and when there is no trend that's too hard of a market for me to be involved with so some people say oh I only trade bank and nifty or I only trade the Apple or I only trade this index you know I I think that you're selling yourself a little bit short right I think there are so many opportunities out there and there's so many stocks that you just focus on one alone sure there are going to be times where that stock is gonna have opportunities but usually there isn't in most cases the trade is to do nothing right so we want to look to see where the trade is to actually do something so let's talk about support and resistance this is technical analysis 101 right this is where it where it all begins supply and demand and that's what we're doing we don't care about the company itself we care about what the buyers and sellers are doing to the stock so support is where there is underlying demand right that is where there are more buyers than sellers so in this case every time the stock gets down to this level it bounces right you notice how it bounces why is it bouncing not because of a tweet that Donald Trump sent out right not because of some news announcement it is going up because there are more buyers than sellers at that particular level this is not my opinion this is fact right the beauty of technical analysis is that we ignore all opinions and the only thing that we care about is fact one of the things that I was intrigued about in yesterday's live trading session were that these great traders were focusing on price they were not focusing on opinions about analysts all this analysts said this or that their focus on price or focus on things like the volume weighted average price that is fact if a stock trades at 40 it is a fact that buyers and sellers agree that the stock is worth 40 you might think it's worth 50 but trust me it's worth 40 right resistance is the opposite resistance is when there's overhead supply this means that there is more supply than demand there are more sellers than buyers notice how every time price gets to this level it sells off why is it selling off because there is more supply than demand there are more sellers than buyers at this particular price again not my opinion right this is fact so supporting support and resistance this is what we call polarity okay when former resistance turns into support let's talk about the psychology behind this at this level every time prices get to this level it sells off rallies this level sells off Rowley this level sells off why because there are more sellers than buyers there's an overwhelming amount of supply relative to demand this fact right but then what happens when prices breakout above that resistance okay that is the market signaling to us that anybody willing to sell at this level has already sold right every time prices gets to that level there are by definition few participants willing to sell at that level so when prices break out above that resistance that is evidenced that now at this price where there were more sellers than buyers now it is fact that there are more buyers than sellers which is why when prices return to that level we know from prior experiences there are more buyers and sellers and that's why former resistance turns into support do we all understand that concept that is the most important concept that we can I can we'll stop right now and that is the most important concept that we can talk about polarity is when former resistance turns into support the psychology is because if every time price gets to this level right price is sell-off the reason is because there is an overwhelming amount of supply relative to demand there are more sellers than buyers right that's why it rolls over but once we break out above that level that is no longer the case now by definition there is more demand than supply at that level there are more buyers and sellers right this is proof of that so when prices return to that level we know from prior experiences there are more buyers and sellers right we know there's more demand than supply which is why resistance turns into support right it works both ways in the opposite direction so in this case every time prices get to this level prices rally why are prices rally because there's more demand and supply there are more buyers than sellers so every time prices get down to this level it rallies it rallies it rallies because there are more buyers and sellers what happens when prices break support the market is showing us evidence that where there was more demand than supply is no longer the case now supply is overwhelming demand there are more sellers than buyers at this level which is why when prices get back up to former support it turns into resistance right that's polarity you know when you look at a magnet right polarity so that's what we call it so let's talk about the psychology okay so here's a stock of 30 bucks right and my neighbor tells me JC you have to this stock and of course I run to my computer and I buy the stock so what happens so now the stock starts going up 31 32 33 I start feeling good I'm like yeah my neighbor he knew you know thanks but I'm greedy so what am I thinking oh I didn't buy enough I should have bought more if it only gets back down to 30 I can buy more shares and now it's a 35 oh I'm making money but I'm I don't own enough man if it get back to 30 I'll definitely buy more so now prices start coming down 34 33 32 man if it only gets back to 30 I'll buy more so what happens when it gets to 30 I buy more think about that happening a million times over all over the world now let's let's rewind one second and now let's think about the psychology of my next-door neighbor coming to me and saying JC you have to buy this stock and I say hey you don't know what you're talking about I'm not gonna buy that stock and now it starts going up and I don't know in the stalker oh my god I can't believe I didn't buy the stock he was right if it only gets back to 30 I'll buy more now it's a 35 the pain in my stomach I didn't listen to him and now he has a fancy car because of all the money he made on that stock and I'm just like oh no I can't believe I didn't buy the stock if it only gets back to 30 I can get the stock well eventually it gets back to 30 and I buy the stock right because I wanted to buy it so bad now let's look at it from the perspective of a short seller okay my neighbor tells me JC you gotta buy the stock and then I remember last Thanksgiving he told me to buy a stock and I bought it and it went down so now I look at him as a contrarian indicator and I say Oh Jimbo says to buy the stock but I know he's gonna be wrong so I'm gonna short the stock instead so I get it at 30 and I think it's gonna go to 20 because this guy's always wrong right we all know that guy so the stocks at 30 and I short the stock because I think it's gonna go higher I think it's gonna go lower excuse me so now the stock starts going up and I'm short so now every dollar that goes up I'm losing money I'm like oh my god I can't believe I'm losing this money so now I'm wrong every point I'm wrong I'm wrong I'm wrong now it's at 35 now I have that feeling in my stomach oh I can't believe I shorted the stock if it only gets back to 30 I can cover my short and break even so now the stock starts coming back down on my goal I'm almost breakeven I'm almost break-even finally it gets back to the price where I break even and what do I do I buy it back right that's that's what supply and demand those are the psychology behind that so think about all of those situations happening millions of times over and over and over and over and over again that's the psychology behind the supply and demand that's why support is support that's why resistance is resistance here's just a good example this is an America this is semiconductors these are the chip stocks and just you can just see clear support the price level for you guys at home is about 120 so here's support every time prices got to this level it rallied every time it gots this level it rallied why because there are more buyers and sellers there's an overwhelming amount of demand relative to supply but then what happened here prices broke support what is the market telling us the market is telling us that where there was more demand than supply that's no longer the case now by definition there is an overwhelming amount of supply relative to demand so what happens when prices get back to that level well we already know from prior experiences that there are more sellers and buyers there which is why former support turned into resistance and then it came crashing down but that we knew already that there was more supply than demand at that level it wasn't a secret so it should be no surprise that when prices got back up to that level it rolled over here emerging markets this is in 2007 and here's former resistance we rally we break out so what is the market telling us here that there are more buyers and sellers right so what happens when we rally then come back to that level we already knew there were more buyers and sellers and that's why former resistance turns into support right this is a very very important concept so we all know this guy right the oscillator junkie who's got every indicator that's ever existed plus a few that he created on his own what are you doing you're waiting for every single one of these indicators to tell you to buy right this is what we call paralysis by too much analysis you just sit there like what are you gonna do there's just an I don't even know where prices on this chart right there are so many lines and colors and shapes which one is price right so when we talk about the most important people ask me JC what is the most important technical indicator the most important technical indicator is price okay everything else is a supplement to price whether you're looking at volume or some oscillator anything else it doesn't matter is a four-second to the actual price analysis to the truth to the only truth in this world which is price not an analyst opinion or a tweet or what your neighbor says all of those are opinions price is the only fact and it's the only thing we can trust the only thing so let's talk about momentum there are many different momentum indicators as you can see here here's a whole bunch of them ROC and MACD and all these other funky names right I like to use a 14 period relative strength index it is an RSI and when I say relative strength index I'm not referring to relative strength which is one asset relative to another I am strictly referencing a momentum oscillator okay 14 period RSI when I say period if I'm looking at a weekly chart it is a 14 week RSI and if I'm looking at a daily chart it is a 14 day RSI make sense and if I'm looking at a 10 minute time frame which I don't but hypothetically if I did it would be 14 10-minute timeframes right so there are two easy ways it's very simple there are two easy ways that we use momentum the first way is by identifying the that momentum is currently in is it in a bullish regime or is it in a bearish regime okay when I talk about RSI being an oscillator all that that means is that it goes from zero to 100 that's all it means so overbought is 70 and oversold is 30 okay when price is in an uptrend as we are fully aware nothing goes straight up even when you're an uptrend you have sell-offs right you're making higher highs and higher lows but what happens to momentum when prices are correcting within an uptrend is that momentum will get overbought on rallies but then in corrections momentum will not get oversold momentum will stay above 30 in fact in most cases it stays above 40 so if you think that price is in an uptrend and then you get an oversold condition below 30 you probably want to reevaluate your thesis of price being in an uptrend in all likelihood it is no longer in that uptrend right same thing in a downtrend rate when prices are making lower lows and lower highs obviously nothing goes straight down you're going to get counter trend rallies right you're going to get rallies within a downtrend in those rallies that come within a downtrend you're not gonna get over by okay you're gonna get oversold on the sell offs but you're not gonna get over by and if you do see overbought readings and readings above 70 in a stock that you think is in a downtrend you probably want to reevaluate that thesis it's probably not in a downtrend it's probably either in a sideways trend or an uptrend very simple which regime is momentum in in a bullish one or a bearish one so here's gold in 2009 2010 2011 and notice how this is just a beautiful uptrend right this is this is what we're looking for guys when you'd want to talk about buying stocks or commodities and uptrends what do we know about higher highs and higher lows we know that it's not a downtrend and then notice how momentum here consistently got overbought on rallies but in Corrections never hit oversold conditions and then once it started hitting oversold conditions that was the beginning of the end so these oversold conditions if you guys remember what happened to gold after 2011 it has gone straight down and stopped making higher highs and by simply looking at momentum getting oversold you had a good indication that gold was no longer in an uptrend you're looking at bar judge Finance right notice how we were in a range bound market right so this is throughout the last year and notice how while it's in a range bound market price wasn't in a quote-unquote uptrend it was in a sideways trend but notice how momentum never hit oversold conditions so even though prices were in a sideways range momentum was in a a bullish regime so when you're asking yourself okay when you're looking at ba judge finance is it gonna break down or is it gonna break out from this range and momentum was indicating to us that the much higher probability was a break out and that's precisely what happened so let's remember in a downtrend when prices make new lows momentum will get oversold and when prices rally counter-trend rallies within a downtrend prices momentum is not gonna get over by momentum is gonna stay below 70 you're looking at per mole enterprises and notice how we were in this entire range bound market momentum continued to get oversold and did not get over bought so even though we were in a range bound market momentum is in a bearish regime again price is the most important thing but momentum is a secondary supplement to price right those are bullish and bearish regimes now we want to talk about divergences very simple two ways that we look at momentum when prices are making lower lows lower highs we want to see momentum making lower lows as well essentially confirming that is it in a downtrend but when prices make a lower low and momentum puts in a higher low that's what we call a bullish divergence right so in this particular case we had lower lower highs momentum lower lows lower lows and then we had a bullish divergence suggesting to us that the trend is now changing and then while we are in this range bound market momentum got overbought so momentum getting overbought while prices are still in a range bound market is indicating to us that there's a much higher probability that this range bound market will resolve higher not lower because momentum is already reaching overbought conditions so even before this massive breakout we were already seeing overbought conditions well in advance in addition to a bullish momentum divergence so there was no reason to be selling this and every reason to be buying it for a breakout and this isn't labeled here but this is actually silver in the summer of 2012 here's a good example this is gold miners in America in January of 2016 we were in a range bound market and prices made lower lows at the beginning of the year this is like January the fifth or something like that lower lows in price higher lows in momentum and that led to an unbelievable rally so if you were just watching momentum you knew that there was no reason to be short these gold miners and every reason to be buying them when prices are in an uptrend making higher highs higher lows momentum is also going to be making higher highs when price is put in a higher high but momentum puts in a lower high that's what we call a bearish divergence that is suggesting to us that the trend is changing not necessarily reversing but certainly changing so a higher high in price a lower high in momentum suggesting a we are entering a new trend whether it be a downtrend or a sideways trend but certainly not an uptrend and then what happens before this rolls over we start to see oversold conditions suggesting to us that not only do we have a bearish momentum divergence we also have oversold conditions these are bearish characteristics these are not things we see in uptrend when we see this this is a big warning flag that this is not something we want to be buying so here's a good example of the United States dollar in the beginning first quarter of 2009 we had a beautiful uptrend higher high in price lower highs and momentum and then the dollar came crashing down okay a warning that not only were we seeing oversold conditions but we were also seeing a bearish momentum divergence and plenty of evidence to not be in dollars yes Michelle yep it's a great great question so Vishal is asking Jacy when you see a divergence right and then prices make another divergence that is what we call a so I had a trader when I was managing my hedge fund his name is Alex tahini and now he runs venture capital for Stephen Cohen and we used to call that the tahini one more high right because he used to say we need one more hi JC you need one more high and I'll be like oh you're right right so what happens that happens quite often when you see a divergence and then you see one more high and it diverges again Dow I would say that's even more bearish right and we see it on the downside too right the tahini one more low right when prices make a new low and you think that's a divergence and you see one more oh my god something big is changing yes good good question Vishal as usual great question great question so these divergences signal a trick a change in trend not necessarily a reversal in trend so in many cases a great question in notice I would say in many cases but in plenty of cases what happens is when you have these divergences prices can correct in one of two ways they can either correct through downside price right or they can correct through time and the more bullish way for a trend to correct is through time not through price right so when you see a situation where prices are correcting that divergence through time and then breaks out that is overwhelming bullish evidence it does not get more bullish than that right and same thing to the downside when you have a bearish momentum divergence that should signal a reversal and then what happens is it corrects through time instead of reversing higher and then prices break down that is overwhelming weakness when these digestion zuv friend happen through time rather than through price right in your in your instance nothing could be more bullish in fact right and in in on the opposite end nothing could be more bearish right good question so getting back to the US dollar right when we made new highs and I just want to talk about correlations real quick at this point this signal to sell US dollars at the time the United States dollar and the S&P 500 were very negatively correlated so by just looking at momentum in the US dollar you knew that the trade was to buy the S&P 500 and to be in the first quarter of 2009 which as we all know was a historic low so just introducing kind of a new aspect in correlations so now let's talk about relative strength I'll never forget this we're in the I believe it was February or March of 2014 and I'm looking at emerging markets and I'm looking at India China Brazil Russia and I'm looking at overall e/m and I'm seeing okay Brazil's making new lows Russia's making new lows China's making new lows India's making new highs what something is wrong something is is interesting is happening here India is showing overwhelming relative strength compared to its peers they usually are moving together and now all of a sudden all of these are making new lows and India's breaking out to new highs something's up that's what we call relative strength and then of course what happened from that point India absolutely explodes and outperforms the rest of the market this is why hedge fund traders are looking for momentum and relative strength and if you catch that relative strength there's something going on when the markets getting killed right the the index is down 3% 4% on the day and everything's red and you see a couple of stocks that are in green there's something going on there the institutions are saying come to Papa I'll take I'll be buying that all day right so if you're seeing everything red and there's a few sectors or a couple of stocks that are green something is going on same thing if you see everything is green and all the stocks are going up and the stock that you own is down something's wrong right it's not participating that's right of weakness here's a good example here we're looking at I don't know if you guys remember Lehman Brothers it's just a famous example of a one of America's greatest financial institutions that no longer exists because of a lack of risk management right so we have higher highs in the S&P 500 in 2007 and lower highs in Lehman Brothers stock something is wrong that's what we call relative weakness if the stock market is making new highs and the stock you own is not making new highs something is wrong and then we all know what happened after that right Lehman Brothers is no more but if you were swatching that relative strength you knew that there was no reason to be in that stock right if the market is making new highs you want to be buying stocks that are also making new highs you don't want if nifty 50 is making new highs why are you buying Pharma which is making new lows right so here's a great example local carborundum universal in 2016 the nifty 500 is making new lows right basically new 52 we close in the nifty 500 in 2016 but look what carborundum is doing making a higher low while that nifty 500 is making lower low that's relative strength that's what we're looking for that's an example of when the market is getting killed and this stock is not that means the institutions are saying come to Papa they're getting involved and we want to be involved with them so here we're looking at the nifty Bank Index up above and down below we're looking at nifty Bank relative to the nifty 500 right so one versus the other so if a ratio is going up that means that the numerator is outperforming the denominator right and if the ratio is going down that means the denominator is outperforming the numerator obviously so what we want to see if you are bullish this is current so if you are bullish Bank and if T you want to see a breakout to new highs in nifty Bank relative to nifty 500 we want to see a relative breakout to confirm the absolute breakout that we've already seen so the longer this takes the more bearish it is so if you're bullish Bank nifty we want to see a breakout on a relative basis so here's just a closer look and just a good example of the fact that even if we're looking at a ratio chart we can still use our momentum indicators to help us in a ratio chart whether it's ratio or price momentum is always helpful so now let's talk about breadth okay people were like oh the nifty 50 it's what I trade and the Nifty's up and people in America are like oh JC what did the market do today when they say hey JC what did the market do today they're asking me about the Dow or the S&P 500 but they're failing to realize that in the nifty 50 there are 50 stocks right in the nifty 500 there are 500 stocks this is not a thing it's not it's just an index that people trade this is a market of stocks right so we want to look at the breadth of the entire market so when prices are making new highs in the index we want to see an expansion of stocks within the index also making new 52-week highs right when you look at historic market tops by the time the index itself is reaching the top there are very few stocks within that index that are still making new highs right most stocks have already started rolling over by the time the index itself makes its ultimate high and then starts rolling over here's just a couple of examples here right these are the list of stocks making new 52 week lows so if an index is making new lows to confirm that it's in a downtrend you want to see an expansion of participation to the downside new lows in the index you want to see more stocks making new lows confirming that but when you look at historic bottoms in this case prices are making new lows but there were fewer and fewer stocks making new 52 we close here this is in 2016 prices of the nifty 500 are making lower lows lower highs but few by the time that these selling climax finished by the time the index made its ultimate low there were very very few stocks still making new lows right in other words we had an improvement in breath the market of stocks was already improving so if you just look at the headlines and see what the 26 year old journalist who's never traded a stock in her life thinks about an index and you're not looking at the components of what is actually taking place I think you're approaching the market irresponsibly you want to look at it as a market of stocks and now within new highs that we're seeing right we just saw a lower low and we are seeing a clear seeing an expansion of new lows essentially confirming that lower low I wouldn't take that as a positive thing and now we're looking at the list of new 52-week highs right so when prices are making new highs you want to see an expansion of stocks also participating to the upside here as prices we're making new highs in 2015 and 2014 in the nifty 500 with each new high fewer and fewer stocks were making new 52-week highs essentially suggesting up here that something was wrong and sure enough we had a massive correction here's something I also don't like with higher highs in in the last year in the nifty 500 we are seeing fewer stocks in the nifty 500 making new 52 week highs that is a problem okay so when we get if we get another new higher than a 5500 we want to see an expansion of stocks within the index also making new highs this current bearish divergence I would argue is a negative factor and we're gonna talk about more about that tomorrow so now finally you know I told I started off by telling you guys that most of the stuff that I'm going to talk about today are things I learned from my predecessors things I learned from people 3 times my age this is one I kind of figured out on my own remember I told you guys in momentum that when prices are making new highs right prices are in an uptrend momentum gets overbought above 70 right and when prices are in a downtrend you're gonna see momentum getting oversold you're not gonna see you getting overbought so now what we're going to do we're gonna look at the index itself and then we're gonna see the percentage of stocks in the index that are in bullish or bearish momentum regimes so here notice how in this downtrend in 2015 as prices in the nifty 500 we're making lower lows the percentage of stocks in the nifty 500 that were in a bearish regime was falling so with the lower lows in price the momentum the stocks showing bearish momentum characteristics were diminishing so we were seeing an improvement of market breadth as prices made new lows there were almost no stocks that were still in a bearish regime that was an improvement in market breadth and we saw that again in in 2016 2017 at those lows with a lower low in price we had fewer stocks in a bearish momentum regime again suggesting to us that there was an improvement in market breadth so here getting back to the current market environment we are seeing higher highs in price but we are seeing fewer stocks in the nifty 500 that where momentum is in a bullish regime so we're seeing fewer stocks making new 52 week highs and we are seeing fewer stocks that are in a bullish momentum regime these are not good ok so if you are bullish stocks in India we want to see new and expansion of the list of new 52 week highs and an expansion of stocks in a bullish range we're not seeing that right now and that's a problem so I'm not gonna get into Fibonacci too much right because I don't want to take up any more time if you guys have questions about Fibonacci we can do we'll talk about this tomorrow and for you guys interested in the slides catallena if you want to pass around index cards what we're gonna do is we are going to if you put your email address I will send you the entire group of slides and like I said we have a research company that provides research all over the world and we launched all star charts that in in January and what we're gonna do is if you fill out your email address we're gonna pick one and we're going to announce tomorrow who the winner is and the winner is going to receive a lifetime membership to all-star charge that in and get full access to all of our research we have an amazing research team not just myself so there'll be one lucky winner who gets access to all of our research for the rest of time so I wanted to finish with something quickly the last thing I want to talk about DJ before DJ pulls me off the stage is risk management people JC and we were talking about this yesterday over drinks they're like oh hey JC you know when it comes to position sizing right because a lot of analysts fail to realize that at the end of the day we have to live in reality you know we're not academics and professors that think in theory we have to live in the real world and we have to enter the marketplace which can be very dangerous if you're not doing so responsibly right so people like all right JC how do you execute so this is how we do it so let's say the stock is out a hundred bucks right and in my infinite wisdom I believe that if prices fall below ninety five all bets are off right you often hear people say JC I think Bitcoin goes to a hundred thousand or I think Apple goes to a trillion dollar market cap that's great that you think it's gonna do that my question to you is at what point are you wrong there has to be a point between where you buy it and zero where you say oh I got it wrong right you don't just wait for this company to go bankrupt and say oh I missed that one huh right we want to identify where we are wrong before we even get in to the trade right I don't care where you think it's gonna go I want to know what the risk involved is going to be where are you wrong so in this particular case we're in a range bound market and we have a stock at a hundred and if it breaks this support as we were discussing earlier it would be evidence that there is an overwhelming amount of supply relative to demand not a situation that we want to be volved with on the long side so in my infinite wisdom I said yeah I say that if we break 95 all bets are off so the risk here is 5 bucks and in my infinite wisdom I believe it's gonna go to 120 and that's my price target right so five dollars of risk twenty dollars of upside it's a four to one it's not that great I like seven to one eight to one in this case this is argue that it's four to one so on a hundred thousand dollar portfolio I am willing to risk let's say 1% of my entire portfolio personally I don't like to risk more than 2% on any given trade and a conversation we were having last night it's not to say that I'm only going to put 1% of my entire capital in that trade it's that I'm only willing to risk 1% of my entire capital on that given trade there's a big difference so on a hundred thousand dollar portfolio if I'm saying on this trade I am only going to risk 1% that means if I am wrong which by the way I promise you is going to happen you will be wrong okay that means I'm willing to risk $1,000 right 1% of $100,000 portfolio so if I am willing to risk $1,000 and the risk is $5 per share right that means that in order for me to execute my thesis and risk that $1,000 I need to buy 200 shares we understand the math right so we are buying more than one percent of the portfolio but we're only risking one percent of the portfolio and I think that this is the greatest chart in the history of all charts print it out tattoo it on your forehead whatever it is that you guys need to do to remember this this is every percentage loss this is the percentage gain that you need in order to make up for that loss notice how if you only lose 5% you don't need to do very much in order to regain that but if you're taking 50% draw downs and you lose 50% on a trade that means you need a 100% return just to get back to where you started so if you guys take anything away from this today is that the most important thing that we can do is manage risk we want to play defense everybody just wants to think about the fancy car that we're gonna buy or the nice vacation or the beautiful jewelry we're gonna buy our wives with all the money we're gonna make when reliance doubles and I am the smartest guy ever right that's how we think we are humans we are Homo sapiens we are bi we are hardwired throughout evolution to do the wrong things at the wrong time that fear and greed is not a bad thing it is perfectly normal it would be abnormal for you not to have that fear and greed okay so think about that there's nothing wrong with those feelings don't feel guilty that you're being greedy and you're being fearful that is perfectly normal what I think is important is to be aware of the fact that you are being greedy and fearful that awareness is the most important thing so we want to check our ego at the door right and be very humble and understand that we know nothing about what will happen in the future and before we enter a trade we want to identify beforehand where we are wrong we don't want to do that once we are already in the trade because once we are in the trade our emotions get involved this is perfectly normal when we act irrationally is when our stress levels are higher and when are our stress levels the highest when there is money involved ok so once you're in the trade your emotions take control and overwhelm your logic so we want to identify where we are wrong before we even enter the trade so I don't care where you think it's gonna go I want to know where you are wrong so I'm not gonna put my salesman hat at all but if you guys are interested in my research go to all sorts dot in and check it out we're offering a nice discount also charge that in slash chart VIP I do a monthly conference call which our members think is you know probably the best part of the whole thing and I can you can access me at any point so what we're gonna do is tomorrow we're going to announce who the winner is if you guys have not gotten if you want to collect the index cards if you want to put your email address on there we're gonna take one and we're gonna give you we're gonna choose one winner to have a lifetime membership to all-star charge that in and I will also send you the presentation from not just today but for tomorrow so today what we talked about was the process kind of the how right where does the week start and then tomorrow night we have all night and we're gonna look at any chart that you guys want to look at we can look at thousands of charts just keep the beers coming and I'll be there all night no problem so if we have any more time you can feel free to fire questions off how do we do what I'm sorry of course yep I because of my time horizon I look at closing prices right so I look at daily closes and weekly closes those are the most important prices and this goes back to Charles Dow in 1886 when he wrote all of his Dow Theory tenants about what the most important things are and what he suggested was that the closing price is the most important price because that is where collectively the entire world agrees that that's the price that it closed so you're gonna have movement intraday but the closing price is the most important price so because of my time frame to answer your question not that there's that you know if you're a day trader then this is meaningless but for most of us 99.9% of the world that is not a day trader we want to look at daily closes and weekly closes if your time horizon is to make money this quarter if you want to make money over the long term then you could look at longer-term charts if you're a day trader you want to look at daily to introduce arts but if you're like me that you don't care what happens today but you don't care what happens next year and that sweet spot in my opinion that's where in my opinion the the easiest way to make money that's the sweet spot looking out days and weeks we want to make money this quarter we look at daily closes and weekly closes good question oh there is well I I think it's a good question I don't have the chart in front of me so I can't say if tomorrow when we have the charting software we can pull up any chart you want I'm happy to take a look at it and if you want to catch me and you have the chart in front of you and you want to show me outside I'm happy to take a look as well RSI is a momentum indicator at the same CMAC deal also there yes which of the two is better they also is a momentum indicator it's not that one is better than the other you're just you're just different they're just different I use an RSI I prefer it to Matt D as I started the presentation I took my CMT my chartered market technician designation so I studied all these indicators Elliott Wave you know again you know all of this stuff but just because you know how to use it doesn't mean you have to use it right for me I find myself taking indicators out of my toolbox better than adding them in what I don't want I don't want to be this guy this is what we want to avoid this is what we call an oscillator junkie what are you gonna do you gonna wait for all of them to give you a buy signal you know in my experience I think you're better off picking one momentum indicator not having ROC stochastics MACD you know for me that's an analysis by too much analysis right you know I don't claim to be a MACD expert right I feel much more comfortable with RSI my understanding is that yes you can identify divergences in MACD you can also identify crossovers in the lines right I believe this is the MACD is this the MACD I think this is the MACD you know when one line process another it's supposed to be a buy signal I never found much value in that I know very very smart people who do use it and I respect them very much so if they're using it I assume that they're finding value but me personally I'm an RSI guy it doesn't make one better than the other it's just what I use right thank you mentioned like RSI 50% of the 60 but is a number of talks having more starts in the oversold position yeah increasing over the period of time yeah the same way in the MACD foolish Magda this thing's if that is not one increasing trend and the new prisoner down prayin that means divergence like I said I'm not a MACD expert so I have I haven't done the work to be able to say definitively one way or another that's actually very interesting and we have an amazing quantitative team at all star charts so when I get back I'm gonna be like I met an interesting gentleman who suggested this and we should run a test and I'm actually gonna do that because that is a very good point that's very interesting good call I can change the periods of RSI there's a lady by the name of Connie Browne who wrote this book here technical analysis for the trading professional her name is Constance Brown Connie Brown and in that book she explains how to manipulate the oscillators and add moving averages and changed the tie the timing like you said 21 and she is a fascinating book and even if this is not something that you want to do I think it's interesting to read it because it gets your mind going in in ways that you hadn't really thought about so it kind of helps your creative aspect a little bit I personally do not change it I like a 14 period RSI that has worked very well for me in the past I understand how it behaves in very simple ways right as you guys can tell we're not you know we're not revolutionising the world here right nothing you see here is is is so over the top eccentric this is very simple things and I have found much more success in keeping things simple than making things over complicated and RSI is just one example and by the way like I said I know very smart people who are very successful who do change it in fact they changed it to nine periods I have found as well I have had I found people changing it to 13 periods so I have seen very smart people do many different things I'm a 14 period I'm okay sure it's a good question so the first thing I do is pour myself a cup of coffee or a glass of wine depends on the time of the day and then something very very important I turn my cell phone off I turn the TV off and I put on music sometimes I'm in the mood for some jazz sometimes I'm in the mood for rock and roll so it depends on what kind of mood in but you want to eliminate the noise put on some music have a nice beverage and start the process the first thing that we do is we look at every single international stock market on both a weekly and a daily timeframe it's about a hundred and twenty hundred and thirty charts right every stock market in the world and once you have gone through this entire process you say okay are more of them going up or are more of them going down are more of them showing bullish signs or more of them showing bearish signs so by the time we get to India or if you live in America the S&P 500 and the Dow we already have global context so now we say okay stocks all over the world are going up but the index is in India are going down something is wrong right or man all of the stock indexes around the world are going down but India's going up something is going on right so we look for divergences there and we also look for confirmations like okay stocks around the world are going up making new 52 week highs and nifty 500 is also making new 52 week highs that's good confirmation so that suggests to us that we want to err on the bullish side so if we are going to be wrong we are going to be wrong because we're buying stocks we're not going to be wrong because we're selling stocks right so once we identify that then we look at the individual sectors right banks Realty ite fast-moving consumer goods sector by sector always on both a weekly and a daily timeframe right we want to look at the longer term and then the shorter term for every single one so if we believe that the indexes are going higher globally and domestically then why are we going to get cute and buy pharma and hope that miraculously it turns around right no we want to be buying the stocks that are leading the stock market higher right so we want to be looking for strength we want to be looking at you know in this case recently it's been you know ite and the bank stocks and things like that not Pharma and then once we identify which are the strongest sectors let's say energy then we want to look at your I OC reliance and the individual energy stocks to see which are the stocks within that sector that are leading the sector higher which in turn are leading the index is higher that make sense yes candlestick PMF holo candle descended so which one do you prefer and it's a great question so his question is which types of stocks do it which type of charge do I use Japanese candlesticks pointing figure line charts bar charts fantastic question I'll have to finish answer his question so the answer is that I use different types of charts for different reasons if I am just looking in this case we're looking at Japanese candlestick charts I'll do my entire analysis just looking at Japanese candlesticks I use them because they give me the most information right high low close open but then you also get the real bodies for you guys who are unfamiliar with Japanese candlesticks tomorrow I'm happy more than happy to you know go over them and you could find me and we'll discuss them but I use Japanese candlesticks simply because I get the most information the quickest okay that's the first thing I do when I'm looking at ratio charts I do not use Japanese candlesticks I use only line charts so if I'm looking at a ratio chart I use only line charts because they open at different times so the candlesticks are gonna give you misinformation so you want to eliminate that noise by using just lines and then once a month I take all of my charts I take moving averages off I take momentum off I look at nothing else just bars because again the most important technical indicator is price right so once a month I take every single one of my charts I take everything off the chart and I only look at bars and that's my process and I don't use P and ethanol last question yeah I think DJ's gonna pull me off the stage this is a gig gotta go JC sorry Santosh can we take the question offline I don't mind JC we're going to keep him hijacked and arrested for the next three days for sure DJ they keep asking come be here all night well thank you guys thank you for everything jaesi provides all star charts calm and dull star charts dot in if you have any questions I'm not going anywhere they kept asking me questions [Applause]

17 thoughts on “Traders Carnival: JC Parets – A Holistic View Of The Indian Markets

  1. One of the very few videos in Youtube with ZERO dislikes…. Speaks of the content. Thanks for uploading.

  2. Superb , Daam Good Quality , People charge Bomb shell of money for this kind of stuff , And here it's free , Wow , Super

  3. I'm from the U.S. but worked jobs overseas in Bangladesh for almost two years. Been to India a lot. They made him put on a badge lanyard, how stupid! Many are super rich there but they are super cheap. Give him a good laptop please…… As usual, super super excellent presentation from JC.

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