India's Stock Market is in Freefall, a Chart You Should Start Following Immediately
Stock-Markets / India Feb 13, 2011 - 06:56 AM GMTBy: DailyWealth
Brian Hunt writes: In an average week, my colleagues and I sift through more than 200 charts.
With some charts, we're looking for specific trading ideas... We're looking for extremes in the market that offer big "anti-consensus" opportunities. This is how we've found big winners for our readers in platinum, oil, uranium, offshore drilling, and overpriced growth stocks.
Some charts we follow are simply for "dashboard" purposes. We monitor charts just to gauge what the market is saying about the global economy and how it's affecting asset prices. Recently, lead Growth Stock Wire editor Jeff Clark highlighted how rising interest rates could cause a sharp correction in stock prices.
Today, I'll share another chart you should monitor right now. It's India's benchmark stock index, the Sensex. As you can see, it's plummeting right now...
So why should we pay attention to what far-off India is doing?
Because stocks aren't just plummeting in India. They're plummeting in most other "emerging markets" like Brazil, Indonesia, and Thailand.
Thirty years ago, investors and traders didn't have to worry about what was happening in India or China. These countries were light years behind the U.S. in economic development. They were just emerging from decades of disastrous collectivist policies, like the ones that brought down the Soviet Union.
Since then, these economies have mushroomed in power and importance. The world has become "globalized." These countries now compete for natural resources, banking deals, and investor funds. A big problem in one country, like India or China, can spill over into other countries... which can create a domino effect of falling commodity and stock prices around the world.
Right now, places like India are seeing surging inflation. India's central bank is jacking up interest rates to deal with inflation that is rising at more than 8% per year. Inflation in China is running at more than 5%. If these governments make a small misstep here, it could push stock prices down... and even drive inflation higher.
A seasoned investor is someone who spends a good deal of time studying the risks to his investments. The first thing he asks when sizing up an investment or a trade is, "how much can I lose?" When you take care of the risks, the rewards spring forth on their own.
That's why it's worth watching this emerging market situation. It's one of the biggest potential risks out there... but one that could lead to big opportunity.
You see, a big problem in the emerging markets could produce a domino effect that would hammer commodity prices... which would hammer emerging markets even further.
To protect yourself against this situation, remember your trailing stops. And if things get really bad, compile a list of "trophy assets" in commodities and emerging markets. If the domino effect gets bad, you'll have an amazing opportunity to buy trophies after the selloff.
Good trading
Brian Hunt
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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