Nifty Weekly Update

Time to talk about long term outlook for Nifty.

I am using a very simple principle of prices that is "Mean Reversion". The prices tend to revert to their mean after diverging from it.

This can be perfectly done for any indices by using the ratio of Price vs the Moving Avergae's. I am using the same for Nifty with two MA one longer term and another ome intermediate term.

The chart shows that the Nifty on longer term MA ratio is at the top of the range and is showing the toppish kind of pattern. While the short term MA is having diveregnce with respect to Nifty.

To further improve the indicator I used the stochastics principle on these ratios. The improvement will give the buy and sell signals like the stochastics.

The Longer term MA stochastics is still to come in sell while intermediate term MA stochastics is showing the sell signal.

Now the big question: How to trade it?

Well the only way to play is through the LEAPS i.e. the long term options on Nifty as position building through the Futures can be too risky.

Thenext part is when to trade it. Well I will answer that question some time later.