Technicals before Budget: Range is wide.

Lets see what the Technicals for Nifty and Bank Nifty are before the Budget.

The color on daily chart is Lev Sell for Nifty and Sell for Bank Nifty. Both the indices has not broken the last low at 5175 and 10030 levels.
The candle for Nifty is Bullish Hammer indicating sideways/bullishness if 5230 holds.

The lower bollinger band is not broken for the indices.

The weekly is Lev Sell for both the indices. The weekly RSI though is showing signs of base formation at these levels.

To summarize the markets are in Sell mode but the immediate trend is range of 5430 and 5230. That's the range of 4% in Nifty. This wide range at the lows of 5250 levels shows nervousness of the market.

If the markets rise after Budget then the recent Bottom will be good support for few weeks.

Plotting Nifty IV ride.

Index IV’s generally shoot up on events like the coming budget for India. 

The current IV is at 29 levels, although not new high for the year but highest for last 6 months.

Plotting IV for Nifty shows a very peculiar pattern.

While the IV’s were declining from May highs of 34 to 52 week at 13 in September just when the Index short off to new highs. The IV’s then broke out of the falling trend line.

From September onwards they have been on a very different path. The initial rise was contributed by the perpetual writers getting caught off guard. After that the Nifty rose to high in early Nov and IV declined to below 20 levels. It is then the whole ride has been turbulent.

The decline from highs of early Nov led to rise in Nifty IV as no the fall off was sharp 7-8% of index.

What is worth mentioning was that the Options market was factoring in the Santa rally as the Nifty IV were declining from high of 23 on 12^th Dec to 15 by Dec end. The index rose by 4% during that period.

Declining IV shows complacency as the buyers are rushing in for protection.

The start of New Year 2011 has been one of the most tumultuous rides in index.

The Index declined 10% in Jan followed by another 3.5% decline in Feb. No wonder that the Nifty IV bounced from lower band at 15 and now at way above the upper band.

Once the Budget event is over one the Nifty IV can possibly cool down to mid band at 20 levels. But that depends a lot what is there in Budget.

So what in the options market betting on for Budget?

The current Nifty SKEW of move of 2.5% in index is at 3 Volatility points.

Indices color change, Range breakout

The color of Nifty and Bank Nifty is now in Lev sell mode after break of 5400 and 10600 levels. The color change was expected y'day itself. Read here.

The weekly was already in Lev Sell mode and the index reversing from mid band is a continuation of bearish signal.

Watch the bollinger bands now. Will the lower band at 5220 will be broken? What are the implications if the lower band is not broken? Will post that later.

Here is the action in the hourly charts. See what happens when the breakout from range happens.

Nifty recent swing with fibonacci

Nifty's recent swing with the bounce failed to close above the 200 DMA and the 38.2% retracement levels indicates bearish trend is not over as of now.

Only Chart

Dow theory update: Rally is under threat

The last Dow update was just a week earlier where the outlook was bullish when the Dow Transports made a new high negating the effect of crude which was a sign of caution.

Now the Transports have broken the previous swing lows and has closed below the 50 DMA. The volumes were also more than average this time. What is worth mentioning is that the decline has persisted for 2 days and both days were more about 1% decline.

The RSI and  Macd was already on bearish divergence sell signal.  Chart.

The current effect is due to Middle east disturbance which is escalating day by day and can have wider geopolitical risks. The biggest is the crude shock. The last one was in 1971 which we have to study in detail to know the effect. Will post the results about that later.

India futures: Break of range trading possible

Indian indices are trading within range for last 4-5 days with narrow range and inside day formation at the middle ground of bulls and bears.
The index has given many whipsaws in trading which is key feature of range trading.

The 120 min bollinger band has been a good indicator to trade during this range period.. Will update about that later on in detail.

The daily colors are still neutral as of now but can come sell on break of range of 5400 and 10700 for Nifty and Bank Nifty.

Best would be stay light and learn something new.

Most Read posts. Do have a look

I am posting the most read posts on this blog. People do have a look what is the most popular here.
And if you have not missed any of the below post do read them.

Nifty: The X & O graph

Nifty IV's what are they foretelling

Quantifying: Nifty and Bollinger Bands Strategy

Nifty ADX Trade

Egypt effect in charts

Gold chart; Picture is worth thousand words

Nifty 10 Day historical IV's are trading near 52 w...

Many of the above posts were at critical juncture of the markets.

Nifty index constituents in a different flavour

Nifty has 50 stocks and each of them have different weight age. Just 3 stocks, Reliance, Infosys and ICICI have about 25% of weight in index price computation.

This makes the index tilt more towards the price movements of the these stocks. What about other quality stocks whose price movement has less effect on index. What if we increase there weight so as to better reflect the movement of broad stocks. Well there is such a way of index computation called equal weight where all the constituents have equal weight.

The S&P500 equal weight index returns completely overshadows the S&P500 index.. See the chart below:

The equal weight index has completely beaten the SPX over last 10 years and has outperformed by a factor of 20 times. Astonishing.

What if we do the same study for Nifty. As the equal weight index data for Nifty is not available we can have to make the custom index incorporating all the change in stocks.
The calculation is very tiring as we have incorporate the changes of stocks. Barath the excel guy made this possible. Many thanks to you dude.

Lets plot the Nifty and equal weight index from 2005 onwards.

The index has not outperformed the Nifty. What does it signify. To me it seems that the top 5 constituents have outperformed Nifty while the bottom 10 has underperformed the Index from 2005 onwards.

Ril BP deal what a +ive after a long time

Ril and BP deal announced y'day is a very bullish event for the Ril and the markets as a whole. This is one of the biggest FDI for India.

This particular event has key to change the face of India Oil and Gas sector. Just imagine the improvement is Technology which can come to India.

Being cash accretive, Ril can now focus on expanding to new sectors like wifi, retail and anything they want.

Coming to Markets, confusion previals with conflicting signals on daily and weekly charts. Can expect some range trading at these levels.

India Sectoral Trend Weekly 18 Feb

The last week was all bullish and while the indices were in Lev Sell mode on weekly basis.
The relief rally was captured by being in reduced buy mode.

Such a move was expected as the breadth was unusually -ive. All sectors were in Lev Sell/Sell mode with New lows hitting "new highs". The State of Market report for more details. Link here.

The current weekly color is here: