India State of Markets

We can found the state of the market by knowing the state of major stocks. By doing this we can get to know what's the undercurrent of any move.

With this understanding I tried to get the state of Market from the top 100 liquid stocks traded in futures.

The methodology used is based on the price action with the Moving Average and Macd. If have earlier used the strategy in the post about sectors here. I will write a detail post about this strategy later.

The results are complied on Buy, Neutral and Sell basis.

As of today the results are as follows.

This shows roughly equal number of buy and sell with about 15% stocks neutral. There seems to be no inclination towards any side.

The conclusion that can be drawn is that the markets could remain range bound for some time.

India Futures daily update 22 Dec

Nifty Futures are now a Leverage buy on daily charts. The signal was generated y'day and today again it is confirmed. 
We can be long with stoploss at 5950 levels.

Bank Nifty has become a buy on hourly charts with reduced sell on daily.
Bank Nifty it crosses 11800 levels then its a buy on daily charts.

Will update in detail with charts soon.
Meanwhile US indices have closed at a new high with INDU closing above 11500 levels first time in last 2 years.
Well I said it earlier in the Dow update post.
I feel that the new highs will still be there in US and Europe indices

Nasdaq: Recovered to the hilt

The Nasdaq is quite near to its 2007 highs and is just 2% short of that target.
It has recovered most from among all the US indices which shows that the recovery has been more in Tech stocks than in general market.

Well lets compare the NDX to the ISM services index.
ISM Services index: It is an overall indicator for the non-manufacturing sector, and is a better indicator of the relationship to GDP than the Business Activity Index alone.

The index best tell what is happening with the  services sector and  services sector is dependent on IT hardware and software way more than manufacturing.

Attached is the chart that explains

Nifty Market Profile

The market profile of Nifty futures show rising Point of Control. This is accompanied with failed auctions at prices below lower Value Area.

Though there are still no clear signs of breaking  range as volume shift is still to happen.


Lets keep an eye if there emerges more signs on the market profile front.

Attached is the chart.

Nifty Hourly charts update 21 Dec

It has been some time that I have not updated about the hourly charts.

The Nifty hourly charts as of now are in buy mode but since daily charts are in neutral mode so we have reduced buy on hourly.
The stop loss can be at 5930 levels.

The Bank Nifty is giving zigzag signals at these levels on hourly charts.  It gave a sell signal on hourly in last hour of trading y'day but reduced to neutral now.
The daily charts of Bank Nifty are still in Lev sell mode but since the correction time is getting over I think that we can book profits on the Lev sell trade partially only.

I would also like to mention that there has been higher bottom formation in place for Nifty and Bank Nifty for last week. Although the upsides are critical resistances there can be some range movement till those are pierced.
Attached are the charts.

India Sector Ranking 20 Dec

I am starting a new series for sectoral ranking so that the bullish and bearish bets can be separated for sectors and we can get an idea what is leading/lagging the markets.

The ranking is based purely on my own system which till now is making sure that no big trend is missed.
I am using weekly data for starting and will soon start the daily updates 2-3 times a week so that we can catch the trend early.

P.S. Please let me know how I can improve these sectoral trends. Any idea is appreciated.

Key observations:

1. BSE Oil & Gas and Metal indices changed from Sell to neutral mode.
2. BSE Power changed from Sell to Lev Sell.

The ranking as of now are like this:

	13-Dec	20-Dec
Sector	Color	Ratings
CNX IT - FUTURES	Lev Buy	Lev Buy
BSE Teck Index	Neutral	Lev Buy
BSE IT Index	Lev Buy	Lev Buy
BSE Healthcare Index	Lev Buy	Lev Buy
BSE Auto Index	Lev Buy	Buy
NSE50 NIFTY	Neutral	Neutral
NSE CNX 100	Sell	Neutral
BSE Sensex	Neutral	Neutral
BSE Oil & Gas Index	Sell	Neutral
BSE Metal Index	Sell	Neutral
BSE FMCG Index	Neutral	Neutral
- BSE DOLLEX 30	Neutral	Neutral
- BSE 200 INDEX	Sell	Neutral
- BSE 100 INDEX	Sell	Neutral
CNX BANK INDEX	Sell	Sell
NSE Jr Nifty	Sell	Sell
NIFTY MIDCAP 50	Sell	Sell
BSE Small Cap Index	Sell	Sell
BSE PSU Index	Sell	Sell
BSE Mid Cap Index	Sell	Sell
BSE Consumer D	Sell	Sell
BSE Cap Goods	Sell	Sell
BSE Bankex	Sell	Sell
- BSE 500 INDEX	Sell	Sell
CNX INFRA	Sell	Sell
BSE Realty Index	Lev Sell	Lev Sell
BSE Power Index	Sell	Lev Sell
CNX REALTY	Lev Sell	Lev Sell

Nifty update 20 Dec

Nifty is doing a zigzag at these levels as the index is trading flat for last few days.
All the technical indicators are flat with no direction.

This happens in the last completing waves of the triangle we are in. Details here.

The daily color is changed from sell to neutral and then again to reduced sell mode.

Trade: Best to wait for the triangle to complete at these levels. The upside resistance is at 6000 levels which has now become kind of psychological barrier to breach.

Just a observation: The Tech sector has become a defensive now. Thats quite a change as it is even outperforming the FMCG sector also.

What does that mean for the markets, economy?

Nifty December seasonal trend

Testing December Trade for Nifty

There is a conception in market that there is a Santa Claus rally in December. For this month we are not even just 1.5% up till now and only 2 weeks are remaining.

I will try to quantify if there is any truth for Nifty about the Santa Claus Rally. Here are the few of questions I will try to answer the following questions:

1. Is there any Santa effect on Nifty?

2. When is the best time to buy for Santa rally?

3. What is the effect of yearly change on Dec returns?

Lets get the answer.

Santa Effect: Well there is a Santa effect on Nifty. But the time effect is not there in the December month.

The index has given +ive returns for 13 years for month of December in last 16 years. That’s a really good seasonal trade. The best here is average return for this month. It is 5%.

Now coming to timing the rally. Well it seems that there is no such trend for Nifty, while there is such a trend for western international indices. The international Indices do show seasonal +ive trend for 3rd week of December but such a trend is missing in India.

Though we cannot time the trade by weekly basis but if we buy at lows then this is the best trade. Now when to buy the lows.

Doing the past analysis it shows average lows of 3-4% from opening price for last16 years. But it is highly skewed data. The best buy point is about 2% low from the opening price.

Now lets see if there is any yearly change effect on Dec returns.

The trend shows that the more bullish a year is the more bullish December month is and vice versa is also true sometimes.

This year we are already 14% +ive for the year and December is now 1.5% +ive and the low was at -2%.

Conclusuion: The analysis shows that the index has been bullish during December month and the lows of about 2-3% can be bought for good upside returns.

Germany's DAX: Whats happening here and why?

DAX is one of the most bullish index in the world right now. (Kospi is another one.)
The index being in thick of Europe woes is making new 2 year highs and has recovered nearly 70% of the fall.

And all this when the Europe's currency worries are topic of every fortnight at least.

So lets dissect whats behind this particular index which is powering it to new highs.

Lets start by analyzing the German economy. The exports account for 1/3rd of the total national output with the country being the second largest exporter last year. Facts from wikipedia.

Now if we look that exports being so high of the output then lets see if the exporting sectors growing.
The main sectors that have Industrials and Consumer Durables both of which are export sectors.
These sectors constitute about 40% of the index. 
The main items being exported are automobiles, machinery which are needed throughout of the world when the world GDP is growing.
Thats one piece of puzzle.
Now comes the best part. While everyone is shorting Euro on rise it makes DAX move up. Why????
Simple rule this weakens their currency and exporters get the benefit form this. wow....

Next thing is that financials just form 15% of the index so very less of the subprime effect here.
Going further there is falling unemployment. How come?
Well the exports are rising and the factories require people. Its not China that they have oversupply of workers.
 So the people now consume more and that powers the economy.

So we have a rising index with the help of exports which benefits from falling currency and inturn raises domestic consumption without much of the financial leverage as evident in West.
Its that simple.

If we look at other countries which closely resembles this model are South Korea and Taiwan. Well check those indices.

Nifty pattern: Triangle formation

Nifty is in a triangle formation on daily charts.
The triangle is descending with base line at 5750 levels.

More about this pattern: General the triangles occur in wave 4 or sometimes in other form in wave 1 also. But wave 1 triangle is very uncommon.

The breakout from the descending triangle is generally upside as per previous studies but that is just a stats so not a generic rule.

This triangle occurrence on daily charts indicates that we can have some upside as this wave is corrective so one more wave upside can be expected. Well that all is elliot.

Now how to trade this pattern:
As of now the trading range is getting shortened day by day so the not any significant movement can be expected but since we are now in last wave of triangle so there can be breakout in a day or two.

On the downside the support is at 5800 levels and upside it has resistance at 6000 levels.

The daily color of Nifty is sell.

Hindenburg Omen is triggered for NYSE

Hindenburg Omen is triggered for NYSE.
Will update more on this, what are the conditions and how it is traded.
I just wish if similar data would be available for NSE.

Meanwhile I did a simple analysis of the SPY and the NYSE new highs- new lows with the stocks above 50 DMA. The charts showed that while SPY was making new highs the NYSE breadth is not following it. And at market tops like this where there are two doji's makes this a very significant factor.

Will post the complete in next few posts.

Nifty flip flop

Nifty is doing a zigzag between sell and neutral mode today.

The index though is showing that currently more weakness can be expected as it is failing to cross any resistances.

Doing a simple RSI analysis on Nifty daily shows that we have formed two peaks on 3rd and 14th Dec both at 50 levels. Now this is first time happening in this bull phase which itself shows that the bull is in danger of phasing out.

The Bank Nifty though continues to be in sell mode on daily charts.

System Testing Trend Defining Line

I did a simple system trade on the trend defining line (TDL from now onwards) as described here.

The idea was to buy and sell on cross up or down.
Brief summary:

Time frame: Daily for last 15 years on Nifty spot.

Buy Condition: Close above the TDL.
Sell Condition: Close below TDL

Short Condition: Close below TDL
Profit Book Condition:  Close above the TDL.

Commissions: 0.10% of trade.
Trade Entry: Buy/Sell on next open bar i.e. if signal is generated before todays close then buy/sell tommorrow open. This is to have a realistic results and avoids preempting the signal.

As can be seen these are very simple rules to trade.

Output
 
3945 Daily Bars 23/01/1995 Through 30/11/2010 (5790 Days)

 

Performance
Profit	5681.2447 Pts
Performance	N/A
Annualized Performance	N/A
Buy & Hold Profit	4819.6582 Pts
Buy & Hold Performance	N/A
Buy & Hold Annualized Performance	N/A

Trade Summary
Total Trades				335
Profitable Trades
Total			115
Long			64
Short			51
Average Profit			147.2962 Pts
Unprofitable Trades
Total		220
Long		103
Short		117
Average Loss		-51.1719 Pts
Accounting
Initial Equity	0.0000 Pts
Trade Profit	16939.0650 Pts
Trade Loss	-11257.8203 Pts
Commissions	784.7109 Pts
Interest Credited	0.0000 Pts
Interest Charged	0.0000 Pts
Final Equity	5681.2447 Pts

Drawdown
Highest Account Balance	5791.9947 Pts
Lowest Account Balance	-278.9460 Pts

Profit Factor: 1.5

Equity chart:

Result:

The system outperforms Nifty buy and hold by 25% over the last 15 years without much efforts.

There could be some minor variation in the results when we use Nifty futures instead of spot. 

I will dissect the trading system in later posts.

Nifty update: Sectors following.

Nifty has reversed and given a reduced buy signal at 5925 levels. Since the daily is in reduced sell mode so be cautious as it is still to be in neutral or buy mode.

Bank Nifty is in neutral mode.

See the gainers in BSE sectoral indices and compare them with the bullish sectors here

Major gainers : Power, PSU and  Oil & Gas.

BSE Sectoral Strength

I will start doing sectoral strength analysis which can show where the color of flows.
The basic aim of this study is to get the alpha so that strong sectors can be bot weak sectors can be short.

For the starting I will do a basic study and then improve on it further adding more parameters so as to make it comprehensive.

For the last week the summary is as follows:

The bullish strength has been in the following sectors

BSE Oil & Gas BSE Power BSE PSU BSE IT BSE Realty

The bearish strength is in the following sectors

BSE Auto
BSE smallcap
BSE Cons D
BSE Midcap
BSE Bankex.

Nifty Bank Nifty update 13 Dec update

Nifty and Bank Nifty gave a short signal on break of crucial support levels.
The support lines are displayed on the charts.

The selloff was so fast that it was difficult to short at the appropriate time unless it was done really fast without thinking and I was caught thinking.
Anyway from here I think it is better to see if this partial sell signal turns to outright sell or the support at 5750 and 11100 stands.

Since the daily charts are in sell mode better to short at any weakness.

A trend defining line

Would it be not easy to have a single line define the trend. So that we go long on cross above it and then sell on cross down.

It would be more easier to follow and tradable.

Well I think there does exists such a line. But beware it is not a holy grail. It does fails many times but will make sure that you will never have that left out feeling and  can give better returns on a half yearly timeframe.

Any ideas or comments on such a line.

The back tested results link for Nifty and Bank Nifty.

System Testing Trend Defining Line

Bank Nifty: System Testing Trend Defining Line

BRIC: India Russia outperformers

Here is the BRIC Indices YTD returns comparison.

Nifty and Russian RTS are top performers with 10% returns each while Bovespa and Shcomp are trading lower with - 3% and -12% returns for the year.


Russia effect is due to rising Oil prices while the Bovespa was +ive but seems not to be tracking the oil. There are some other factors like the ban on offshore drilling could have contributed to the lower returns.



The puzzle is china which is the underperformer even when the commodities are rising. On the face it could be the constant tightening that their PBC is doing.
Attached is the chart that shows the reserve requirements are consistently rising throughout this year.

What a day

Bank Nifty has triggered positional square off at 11500 levels. The first round of profit booking was done at 11300 levels.

Nifty has also triggered exit signal if it closes above the 5880 levels.
The partial profits were booked at 5810.


These kind of reversals can be expected as the fall has been quite severe.
Though the daily trend is still bearish so we can short again on next weakness. Will update about that.

Is there any way we could have covered the shorts at 5800 below?
Well I think that such a thing becomes quite difficult. If there is such a system then that will always miss out the larger trend. Prediction becomes difficult while trying to ride a trend is much easier than that.

Though that (riding a trend) also needs a lot of guts to follow as I myself thought that the selloff will not this much. Well I was wrong in thinking that.

Any comments on the above.

Nifty and Bank NIfty profit booking signs

The Nifty and Bank Nifty indices are showing profit booking signs at these levels. Key observations are:

1. Failed auction at lower prices y'day and today as of now. (though the day is still to be completed.)

2. Hourly candles are turning bullish, though they are still bearish on daily charts.

The best is to book profits and leave some of the short position for proper exit signals.

I fear that since this fall was severe the bounce can be faded more often and volatility will be on rise for some time now.

Nifty Market profile bearish

Nifty futures market profile have a bearish picture today.
The index closing below the support for the first time in this fall.

Attached is the chart.

Commodities reversal pattern

Several commodities exhibited trend reversal candle y'day.
Prominent are the Gold and Crude ones. They both made a new high but then closed lower.
This shows heavy profit booking at higher levels.

Attaching chart of Gold which reversed from 1420 above levels.
The weekly charts indicate more range trading possible here.

In the chart is shown similar formation from June 10 period where similar patteren emerged and after that the prices remained within a range for quite some time.

Nifty & Bank Nifty update 8 Dec

The system triggered Nifty sell today and Bank Nifty has been in sell mode form 7th Dec.

The first round of sell off in Bank Nifty was not captured as it was a straight fall from the top which is very unusual.

Nifty today triggered the sell signal in last half.

At present I think that since this sell signal has come in already oversold signal it minimum exposure can be taken instead of full throttle.

Although the same thinking went wrong in Bank Nifty anad has proven wrong when the direction of market changes.

Attached are the charts.

Nifty Weekly Price stochastic

I have a different kind of stochastic to use for weekly charts.
It identifies the type of phase with possible entry points.
The exit gets difficult as sometimes there is divergence.

Anyway, the chart is attached below.

This shows that the move below 1 levels are bearish while the values of above 1 levels are bullish.
The best part is that in the bull phase the indicator generally reverses from readings of  around 1.1 levels.

This time in early September the indicator gave a buy signal and is still in buy mode.

The exit can be done at values of 1.2 levels.

All the levels and lines are shown in the chart.

Whats happening with Reliance Industries

It is the most analysed and disceted indian stock due to the admiration or the secrecy hidden under the layers.

Well the main business of Ril is refining and petrochemicals and they are very well related to Crude. So we first need to check how well is the crude movemnet linked to Ril.

The following chart shows the coorealtion between the Ril and Crude futures (CL1.)

The coorealtion ha sbeen quite high and has hovered above the 0.7 for last 3 years. The value of 0.7 is quite high with R^2 of 0.06.

This is done on weekly charts so as to smoothen the daily volaitlity.

Next I overlayed the Ril and Cl1 on same chart to see how they behaved on the same weekly term.

Well they behaved more in same way then in different way.

Also when I compared the Nifty with Ril and Crude the coorealtion of RIl iwth crude is more clear.

Now the crude has started to outperform the ril on normalised basis we can look to Reliance also start performing atleast for some time now.

Please do post comments below.

Nifty update 6 Dec

The system gave the sell signal at 6000 levels for exiting the buy trade.

I earlier indicated the signs for Nifty long exit here.

Attached is the chart of Nifty exit.

Nifty signs fo profit booking

Nifty futures @ 6040 are giving many signs of profit booking. Also the level of 6080 is crucial to hold for any upside.

Signs to book profit:

1. Nifty futures 50 DMA at 6087 levels. Nifty showing weakness at these indicates more selling can be expected if 6000 levels are violated.

2. The 6100 is the 61.8% retracement level of the recent fall. The bounce generally reverses from these or 76.4% levels.

3. Divergence on hourly charts with a possible completion of 5 wave up. I am saying possible as I do not rely much on elliot waves.

4. Nifty closing below the support MA on hourly charts. Attached is the chart.

There is only partial sell signal in system so we can still wait for proper signal if need be.
P.S. We are 50% long from 5915 levels. The first 50% was done at 6010 levels.

Sector rotational model: Recovery in full swing

The state of the economy can be gauged by the performance of the different sectors of the economy or better different sectors perform differently as per the phase of economy
The above theory calls for the sector rotation between different sectors. More can be read Details in the book here.

The below chart shows the sectoral performance of the different sectors of US spider ETF for the last 4 months.

The sector which have outperformed are Energy, Metals, Consumer Discretionary, Industrial, Tech.
While the sectors which are down are Healthcare, Utilities and Financials.


The out performance of Energy, Materials, Cons Disc, Industrails suggests that there is demand of goods which is now showing in GDP growth of US.
The Utilities and Healthcare are generally regarded as defensive so they underperform in bullish Markets.

The only outlier in Financial sector which is underperformer even in the decreasing interest rate scenario.
One explanation for this can be the -ive news of the mortgage front coupled with the Euro crisis which shows more of bad loans in the system.

I will put a similar sectoral analysis like this of Indian Markets also.

Bank Nifty 1st profit book signal

Bank Nifty today gave the first proper profit booking signal at 12300 levels.

I told at 12500 levels earlier for partial profit booking so position can be closed here as per the system.

The net profit is 500 points on first half and 320 points on a very conservative basis.

Nifty has not given any signals of profit booking so the position of 50% size still stands there. (The first half profit booking was done at 6010 levels.)

Attached are the charts.

Nifty channel shows some more upside pending.

Nifty is trading in an uptrend channel for last 1 year.
The index has given a good bounce back whenever it touched the lower channel.

It touched the lower channel in Aug'09 and July'10 and then bounced to the top of the channel.
Comparing time wise the index has spent more time in upper half of the channel then in the lower half.

During this fall the index came to the mod band of the channel and then has bounced back.
This kind of scenario generally comes into play when the index is in bull run. (debatable issue)

It needs to be seen if the index crosses the upper band and makes a new high then for sure it is a bull run. ( no debate here :)

Which index is more volatile Nifty or SP500?

There is a perception that US markets are more stable then the emerging markets.

Well it is not the case always.

The best barometer of volatility is the VIX index which is regarded as fear index. It is calculated from the options premium. More on this and the VIX related ETF's later.

I have compared the US VIX and Indian VIX on a normalized basis. The IN VIX has been consistently lower than the US VIX for last 9 months. In September the Indian VIX was near all time lows in IV's.

The white line is the US VIX and the red line is Indian VIX measure.

This can be attributed to better returns of Indian markets than to US markets which has seen huge swings based on bets on the economy while Indian economy has been more stable.

Also the huge FII inflows show the confidence in the Indian and other emerging markets.

Does this mean that Indian markets are less volatile than US markets? In some sense it is true while not completely.A part of it because of slightly different way calculating them but thats only a small part.

Larger picture still  shows that the Indian markets have been less volatile atleast this year.
Next time I will do the same analysis using other technicl analysis volatility tools.

Dow Theory Trigger: Transports at new 2 year high. Will Indu follow?

The Transport Index has made a new high of 2 year at 5000 levels yesterday. They have now surpassed the old May Highs.

The Industrials though are still  though are below their May Highs of 11452 levels. It is just 2% short of those highs.
It needs to be seen if the Indu makes a new high or the Tran gets pulled back as there have been many instances where this has happened.

My analysis says that it will make a new 2 year high as seen in the channel of the indices.
Both of them are in perfect channel from June 2009 lows and at present are at or below the mid line of channel.

This shows that there is ample room on the upside.

ES1 Index range breakout in Market Profile

ES1 ( US SPX futures) have broken out of the normal distribution rnage at 1193 levels.
See the close above the Value Area for the last 5 days.

The index now will create a new equilibrium depending on todays close which can also decide if the breakout was real or a false one.

There were many false auctions in last few days at the lows suggesting pullback.

Till now there has been good volumes at the 1205 levels.

Nifty & Bank Nifty Buy Triggered 2 Dec update

Nifty and Bank Nifty triggered a buy in the first hour of 1 dec trading.

The indices are now trading above or near the short term resistances at 6000 and 12500 respectively.
Since there has been a move of more than 2% there is short term overbot levels which can trigger the profit booking.
So one can book partial (50%) of profit booking here and let the other half run till we get the proper exit signs.

Attached are the charts.

Nifty MA Sys Trades 30 Nov

The index selloff for the first half did not generated the sell signal as the Hourly MA did not turned red. That was a good signal to not leverage short.

Nifty then moved above the Larger MA and ultimately above the 34 hour MA. This gave a buy signal and then the both the MA turned into buy mode.

Since the index is still in short mode in higher time frames it was best to close above the 5900 mark and then wait for tomorrow's action.
If the index stays above the 5880 levels then this shows that there can be upside to 5950 (38% retracement level) or 6010 (50% retracement level.)

Nifty trading 30 Nov

Nifty futures were quite volatile today with index giving both sell and buy signals.

First trade was of short at 5800 as the index got sold off from the 5 DMA.
The index is in sell mode for some time but the selloff is at the extreme as the daily rsi is in oversold levels for  bull phase.

The second trade was the buy when the index moved above the sell signal candle and ultimately above the 5 DMA. The signal was expected as the hourly major trend was bullish.

The buy should be closed at the end of day as Nifty failed to give a proper buy signal in my system.

Attached is the color of Nifty hourly charts.

Nifty 10 Day historical IV's are trading near 52 week lows level last seen in Jan'10.

The coincidence is in 2 ways:

1. I n Jan Nifty made a new high at 5300 levelsand this time also Nifty is at new highs of 5400 levels.

2. Mid Jan was the result season and this time also the result season is going on.

The 30 Day IV's are also inching lower which is also another point to observe.

All the above advises caution as there is heavy Put written at 5300 and 5200 levels.