Global Macro Strategy second half 2011: Inflation outlook

In the previous post we postulated some of the main factors which can dominate the second half of 2011.
The factors are:

1. QE3 or not?
2. Interest rates outlook for Emerging economies.
3. Will Fed hike the rates in 2H 2011?
4. The persistent European problem.
5. High levels of household debt and
6. Double dip or not....


Lets have a discussion about how each one of the above will affect the undercurrents of the markets.


As of now Fed has said that they are not doing any QE3 and I am sure they will not start any other money printing  program by the name of QE3. The Fed is already buying the bonds from the proceeds of maturing securities. 
That amount is not much and is staggered so the impact will be minimal.


The dual target of Fed being Inflation and unemployment cannot be met through the QE program now. While launching the QE2 there were fears of Deflation which is why the Fed started the money press. Now the CPI is rising so much that the US has released crude from the Strategic Petroleum Reserves. 


About employment the Fed cannot do much as it grows with the GDP. Unless there is growth in real economy the will not be much employment. To grow an economy one needs policy and incentives which is job of an administration, any reserve bank cannot do much in that space. 


So we feel that there will not be any QE3 program unless the inflation gets tamed.


It is expected that Fed will start raising rates in 2nd Half 2011 but as of now there are no indication in that direction. In the last Monetary Policy assessment Ben said that he is looking for an extended period of low interest rates. It is through the low rates that the Fed can keep giving the stimulus to the economy. Although it is debatable as Japanese low rates have not stimulated their economy in any way. 
I feel that unless there is a pickup in GDP to above 3% for two quarters Fed will not raise rates.


The ECB meanwhile has given indications of raising rates again as there target is to control inflation rather than unemployment. 
Given the worries on sovereign scenario for many European countries it does not make a case for any steep increase in interest rates but another 25 bps cannot be ruled out as the German and France industry is in good shape.


The scenario is very different in the Emerging economies as some of them has already raised the rates as the fight against inflation is intensifying. India, Brazil, South Africa, Taiwan all have raised rates minimun of 3-4 times in past 1 year.


There are now talks from China and India that the interest rate rise might be over as Inflation is showing signs of peaking. I think that with crude down to $90 levels there can be for sure some cooling off signs in inflation. 
Vietnam has actually reduced their rates this weekend as the growth suffered a lot. 


What we can see is less raise in interest rate rise from here.


In short there is for sure signs of abating inflation as there is no QE from US and crude below $90 levels.
This can reduce pressure on Emerging economies not steepen the rates which can improve their GDP growth in next 3-4 months.


The developing countries on the other hand will raise rates esp ECB as they feel the inflation heat.


All this can reverse the money to EM stock markets which fled earlier this year on inflation outlook.


Rest in next part

India Macro Strategy Part 1: Factors to consider

India has under performed for the first half of 2011. The performance was one of the lowest among the emerging markets inline with Egypt, Vietnam and Brazil. While Egypt and Vietnam has there own specific internal issues Brazil is in same set as of India. The problems plaguing India are Inflation, Investment slowdown, Inaction by policy makers.

We have been bullish on consumption stocks namely the FMCG for the first half. The rationale was to be in defensive sector as the first mid cycle slowdown hits the global economy.

Before forming strategy lets outline the major factors to consider:

1. QE3 or not?
2. Interest rates outlook for Emerging economies.
3. Will Fed hike the rates in 2H 2011?
4. The persistent European problem.
5. High levels of household debt and
6. Double dip or not....

All of the above issues were there in Jan 2011 and we are still having the same issues. Structurally noting has changed expect that QE2 has ended and fed has not indicating of any further QE measures at least by in name,

The same set of problems are still in the global economy.

Coming to India the main issues we need to consider are:

1. Inflation.... will this Genie ever get into the bottle
2. Investment slow down across the sectors.
3. Inaction by Govt. on policy formulation.
4. GDP Growth concerns

The policy inaction on number of fronts has been the main concern for the India. Recent corruption scandals has impacted the county's image a big way. FDI like Posco has been in limbo for a long long time.

These are the factors we will consider to arrive at strategy for this half.
We will explore in detail each of the above factors in next post.

Nifty multi time frame trend: Strength of convergence

In my last post on trend indicator I mentioned that there is struggle between short term traders and long term investors which makes trading difficult as the range comes into play and trend gets erratic. Link here.

After that the Trend indicator gave a confirmed sell signal on both the Hourly and 4 Hour time frame. With that the last range was broken and RSI also shifted to bearishness as it broke the support of 30 levels.

Today the index declined 2% which came as surprise to many but our Trend indicator indicated quite early that trend is bearish now.  Attached is the chart.

Confluence of trend gives the best trading opportunity. 

SPX multtime frame trend chart

SPX has come to 1264 levels after breaking from the 1300 levels. We posted earlier that any break of 1300 levels can lead to straight fall. Link

The index has broken the first support of 1275 and is heading to 1250 levels.

In our multi time frame trend indicator we had a sell from 1330 levels. Attached is the chart.It shows how the bullish trend was captured and then the decline also. There were 2 whipsaws one long and one short. But the loss was not much. The trend followers look to capture the larger trend like the first bullish signal while keeping the losses minimized.

Nifty Trend multi time frame The fight of long and short term traders

Nifty has bearish trend activated from mid Friday and after touching the 5480 support the index is now flat.
The bearish hourly trend was of smaller duration.

Were there any indications of that happening? Yes there was.
The answer lies in the higher time frame trend. The 4 hour trend was bullish.

Whenever there is mis alignment of traders (short term) and investors (long term) the profitable trend is less.
It is there alignment also where trend is smooth and trade able.

SPX 1300 the line between Bulls and Bears

The SPX index closed just above the 1300 levels on Friday.  The candle was full body down with a negligible uptick from the lows. This shows the kind of pressure in selling.


The  last few attempts at 1300 were defended except for the sell off in March. And there is a very remarkable similarity between this and March's candle. Both were full body downsize candle. The other two attempts exhibited a bullish hammer at 1300 levels.

Will we break the 1300  levels this time and give a conclusive close below those levels?
Well the kind of candle does indicate sellers in control of the market with 3 consecutive bearish candles below the 50 SMA.

Any follow on below friday's low with bearish hourly candles is a sell opportunity.

Nifty Trend indicator in Sell mode

The trend indicator has turned to sell mode on Friday mid day.

The index turned down exactly from the 5600 levels which has been resistance for last 3 rimes.  This was the 4th touch and it has failed to take that level out which paints a very bearish picture. 

The buy from 5427 turned to sell at 5543 levels. 

Emerging Markets ETF

Emerging markets are generally regarded as the risker trade then the SPX. They are generally leading indicator of the change in the risk perceptions around the world.

The EEM etf is a good way to track the performance and perception about the emerging markets.

This etf has been in range for some time after breaking out from the resistance of 48 but then it reverted back to channel just when the commodity selloff started. This was also partially attributed to the QE2 end when risk reduction started globally.

The ETF now is holding the grounds quite well as it held the last range support of 45 and now has formed a falling wedge kind of pattern from where the breakout is happening.  The bullish breakout is confirmed above the 48 levels as it will be then above the range high.

Worth noting is the change in slope of relative performance w.r.t SPX.

Does this indicate the change in perception to risk especially when the US indices are falling?
As the emerging markets have both growth and domestic consumption not depend on US economy.

Nifty Resistance still holds though picture is looking good

Nifty hit the old resistance at 5600 levels and saw gap down opening. Though the sell off was more news based but our charts predicted that the bull bear line at 5600 matters a lot.

The picture is bullish as the hourly trend indicator is still bullish as price is above the levels.

This is the third time 5600 is hit in last 1 month for Nifty and it has failed to cross. The next touch of 5600 will set the trend.

Nifty in hourly trend.

Macro Inflation Indicator Brazil's Bikini Wax

Today I read a beautiful article about how inflation is hurting people in their very social life. Link
The simplicity measuring inflation is these ways is far far better than putting all the surveys and collecting prices.

Summary: Brazil has one of the most beautiful beaches with year long summer so waxing far common. But the cost of waxing has increased a lot and is putting a lot of pressure on wages.

The country is facing very similiar prioblems like India and the central Bank over there has increased rates a lot and is also using currency as a tool to fight the inflation.

The stock markets looks very and has followed more or less same path.

US Sector Rotational Strategy XLE loosing leadership

US Sector Rotational Strategy XLE loosing leadership

Energy sector has been a favorite of this Bull Run and has been the outperformer among all the sectors.

That though is changing now as the relative strength of this sector has not only broken the uptrend but also has declining strength vs SPX now.

The new leaders are Consumer Durables, Staples and Utilities.

Nifty Trend Multi time frame :

Please read the following post on the usage of Multi time frame at

Nifty Trend Indicator with multi timeframe update  which shows how the higher time frame trend can be used for better trading and trend detection.

Nifty index had a good selloff from last lat Apr onwards.

Have a look at the chart below which shows both the 4 hour and 1 hour trend.

Leverage could be increased on confirmation of the trend in both the timeframes.

Macro event trade: Wheat and Rice to gain

There is a drought condition in North China which is a major Wheat and Rice growing area. The drought is said to be worst in last 50 years. The first alert for the drought came in Feb 2011 when the rains were totally dry season.  What makes it worse is that China is world’s largest producer of Wheat.

The drought has come at the time of sowing season with very less of sowing season remaining now.

Since China has the world’s highest population it has many mouths to feed. This combined with the affluence of Chinese the per capita wheat consumption of China has increased a lot.

The wheat rallied to new highs in Feb and fell to supp[ort levels after that to 700 levels.

The commodity is trading in a range as of now but any further supply disruption can take it to new highs.

There are news of Ukraine starting wheat exports which can calm the markets for short term as of now.

But one can keep this commodity on the watch list for some time.

Silver Swing high below 50 DMA

Silver is making swing high below the 50 SMA.

The daily RSI has also failed to cross 50 levels and in now trading below 40 levels.

Nifty Color update and Bearish Setup

Nifty color on weekly has been on Sell mode from the start of the week. This coupled with the Daily Lev Sell mode is bearish for the index.

Nifty Inside Day and Narrow range setup:

If today Nifty closes below the 5520 levels then the index will break below the low of Inside day. The Inside day has high and lows within last day and is a sign of volatility contraction.
Also the Nifty daily range (High - Low) is lowest among last 7 days which is also a sign of volatility contraction.

So any break form this range can bring a one side move.  This setup when back tested gives a good result and the direction persists for next 3-5 days.

Nifty Trend Indicator with multi timeframe update

Nifty Trend indicator with 4 Hour timeframe


There are times when there is no clear trend in the index. This generally happens when the short term and longer time frame trades are not on the same page or the traders and investors are thinking differently about the markets.

The ongoing week is one such period in the market. The above conditions can be detected very easily with a trend indicator and using it on higher timeframe.

For example: The following chart shows the Trend for both 1 Hour and  4 Hour time frames.

The hourly trend shows traders activity while the half day (4 Hour) timeframe shows large investors take on the markets.

Right now the 1 Hour Trend is in Buy mode while the 4 Hour is in still Sell mode.
Perfect recipe for confusion and that's pretty much evident also as the Index is seeing buy form lows while the rallies are being faded out.

Related Post:  Trend indicator with multi time frame

Strategy What happens when QE2 ends Part 1

The QE2 has been supporting markets a lot when it started in Nov 2010. The global markets made a fresh after that. The program is going to end in June 2011 and probably that's why the global markets  are changing their trends.

 In next few posts I will try to explore how to benefit from the upcoming macro event.

First lets see define the timelines

QE1 Start :  Jan 2009        QE1 End : Mar 2010

Ben Speech on QE2 Aug 2010  --> Indication on starting another round of QE.

QE2 Start : Nov 2010   QE2 End: June 2011

Everyone knows that the QE1 ended a bear phase and started bull run and most of global markets made highs in Jan 2010.

Most of the markets struggled during the QE1 end to start of QE2 period.

Attached is the chart with SPX and EEM with timelines.

The above chart clearly shows all the trend for US and Emerging markets.

Worth noticing is the markets show jitters 1 month before end of QE as it is unwinding of trades based on QE.

And I feel that the recent free fall in commodities was more or less attributed to end of QE2.
The increase of margins just added fuel to fire. The effect is clearly visible on CRB index charts.

So there is increased probability that when Fed withdraws the "Helicopter Printing Press"   (Visually)  then we can see a range market for quite some time.

India Sectoral Trend Weekly 6 May

The last two weeks have been tumultuous for the equity markets.

With the straight fall there has been a lot of change in the weekly sectoral trend for the markets.
The main points are:

1. The # of sectors on Sell / Lev Sell mode is 10 with CNX IT Sector in Lev Sell mode for last 2 weeks.

2. Nifty was in Neutral mode as of Friday 6th May.

3. The trend for 11 sectors is Neutral which is quite high indicating the ongoing sideways movement in many indices.

4. Broader market indices like BSE 500, BSE Small Cap, BSE Mid cap and  Nifty CNX 100 are in Neutral zone.

5. The cyclical index Metal, Realty, Cap Goods and IT are in bearish mode while the defensive sectors are in Neutral mode.

The above points clearly shows that the trend is towards accumulating the consumption stocks rather than being in Growth or High beta stocks.

This is inline with the earlier Macro call of Monsoon trade. See Post here.

The weekly color table:

Sensex: Quantifying Sell in May

There is a very famous investment philosophy to Sell in May and return in October.

Lets see how that strategy works for our Indian Markets.

The conditions are to Sell on first day in May and Buy on first day on October with commissions of 5 bps.
We are testing this from year 1980 and 2010 so that it covers most of the history available.

How are the results? Well, its not profitable. The initial equity of $10K got reduced to $9.8K while buy and hold was massively up by ~2 times.

Here's the snap shot of the performance.

There were only 10 profitable years among the 31 years of testing with the year 2010 contributed massively $4780  to the results.
The profits are completely skewed by a single year.

This clearly shows that the strategy is not profitable in itself but there was one profitable trend. That was the higher probability of a dip in early May which lasts for 2-3 weeks on an average.

Here's the equity graph.

Qunatifying Nifty Bollinger Bands : First down side breakout

Nifty futures has given two consecutive close below the lower band and today again opened below the lower band.

The bandwidth also increased after hovering near 52 week lows for some time. The breakout from such a complacency was quite sudden.

The index gave first sign when the bounce from the mid band failed to touch the upper band signifying weakness ahead.  Such a formation when the top remains inside bollinger band has been very bearish for Nifty index. On  break of mid band additional confirmation came from the color system on 28th.

This shows how multiple confirmations can lead to good trade.

The index is now at the trendline support from last 3 lows made in Feb and March. As of now we are trading at the trendline. Any close below this line will be quite bearish for the index.

Related Post:Qunatifying Nifty Bollinger Bands Breakout

Nifty and INR : The relation is telling something Part 2

This post is second in a series which shows correlation between Index and Currency. Most of the moves can be detected through this relationship.

In Part 1: Nifty and INR : The relation is telling something  The Rupee breakout told us about the Nifty upmove.

This time the INR has come out of the channel and is trading higher ( or lower in exact sense.) The index meanwhile is still holding the lower channel. Any sustenance of INR above 44.50 can surely be more bearish for the Index.

Nifty and fibonacci

Nifty index has broken the 200 SMA and the 50% retracement levels from the Nov top and Feb bottom.

The fact that the index faced resistance at 61.8% levels itself is a very bearish sign.

Even the bounce from 200 SMA was much smaller than the previous 4 attempts. Are bull taking a leave here?

The daily color of Nifty and Bank Nifty is in Sell mode from Fridays open. Read the color update here.

India futures color change to Sell

Nifty color changed to sell mode at today's open and the Bank Nifty also changed to daily sell mode.


The weekly color is still buy for Nifty and Bank Nifty but the reversal trendline is very close at 5700 and 11200 for Bank Nifty.

Nifty Two trendlines will define the move

Nifty index has been trading in a range for quite some time.

The index tested the trendline resistance from Nov and Dec highs but failed to cross it. The second test within a week again failed to move above it.
While on the downside the 200 SMA has been strong support for some time.

The daily charts also show another support zone at 5700 levels where the volume profile shows good buying action in the past.

The worrisome part is that the rise from 5700 levels has getting smaller and smaller and in April we had the third bounce which was half of last time and did not last for even 3 days.  This does paint a bearish picture.

Worth noting is the near stagnation at 200 SMA levels without taking out the peak of first test after the breakout from 200 SMA.

Any direction breakout from the above two trendlines will set the direction for future.

Attached is the chart.

Well its not all bearish for Nifty, there is a bullishness also in form of invested Head and Shoulder.  This particular pattern is in formation so have a watch on this.

The bullishness will come only on break above the neckline at 5950 levels.

The volumes which has been lower as per the textbook pattern. Need to watch the volumes on upside breakout here.

Trend stalling: Perfect range play

Nifty's upmove looks to be stalled at 5900 levels.
The two consecutive doji with now index below their lows shows that the trend is still of range.

With first test of 200 sma already done the index flattered in 4 days which is not a too bullish sign.

The index has also come inside the flag formation. This itself is not bearish bearish if the index takes support at 5800 and resumes upmove.

Worth noticing is the rsi play for nifty futures. The indicator has been between 70 and 30 levels for last 7 trading days.

India Sectoral Trend Weekly 21 Apr

Indian sectoral indices while remaining mostly in buy mode are showing signs of sideways move.

The indices average move last week was just 0.4% and prior week was -0.5% while the Nifty move 1.1% last week and -0.5% prior week.
The average move of last 2 weeks for broader market indices like BSE 500 is at 0.3%, Small cap at 0.6% and Nifty Mid cap was flat.

This shows that while that there was some traction in Nifty there is no clear sectoral leadership as of now which can take markets to new highs.

The weekly color is as follows:

The IT is still maintaining the Neutral color after the Infy's results shows broader strength is still present in the index.

The Auto and FMCG indices are clear winners and this could be a good monsoon macro trade.

India Futures color trend: Indices at color change levels

Nifty futures has been in complete range for most of April within the 6000 and 5700 levels.
But on weekly basis the index has maintained the support.

There is a bullish flag formation on the index which and the index is still trading above the breakout levels which is the bullish sign. See Post here.

The color as we start the week:

                         Weekly          Daily
Nifty                 Buy                Neutral   Buy color on index close above 5900 levels.
Bank Nifty        Buy                Buy         Lev Buy color on close above 12000 levels.

Dow Theory update: New high in Dow Industrials

The US index Dow Jones Industrial made a new 2011 high after the Transport index made a new high on 31st March.

This validates the bullish stand. The dip in mid March did triggered a sell signal when the 50 SMA was broken.
But the recent swing low above 50 SMA was a buy signal. The above average volumes on breakout is a good sign.

The Transport index in remains in bullish trend.

The daily macd is though in sell mode but it has started turning to bullish mode.

Nifty Point Figure update

Nifty is at crucial resistance of 5950 levels. The index though gave signs of breakout from Bullish flag formation with gap up and good volumes as posted y'day.

The index on Point and Figure charts is also an interesting study at this juncture. The index is showing bullishness with a failed bearish breakdown and is now at triple top resistance.

If it breaks out from this levels then the target comes at 6100 which is also the target of bullish flag breakout.
But the final call will be only on touch of 5950 for spot when the breakout gets confirmed. 

 

There are multiple lines of resistances between 5900 and 6000 levels so the move can be quite erratic and frustrating. The ideal case would be good volumes at these levels 

Nifty Is this a bullish flag formation?

Nifty hourly chart shows a bullish flag formation.

The index maintained bullishness by staying above the 50% retracement levels.
Volumes also picked up in last 2 hours today near the upper end of channel.

Any sustained breakout from the channel is a straight buy as the weekly color is still a Buy.

Nifty multi time frame Bollinger - Coinciding levels

The Nifty Multiple time frame Bollinger tells same story. The Weekly, Daily and Hourly all are near to mid band i.e. 20 SMA. What a coincidence.

Worth noting are the contracting or flat bands. This when there was a Bollinger Band breakout on daily charts.

I consider the  20 MA levels generally as the mean reversion where the market is near to neutral levels. And Markets do not like to stay such for long times.

Since the index has come to mid band (20 MA) from the upper band shows that undercurrents is still bullish though we may be in range for some time.

India Futures: See saw at 200 DMA of 5700

Nifty after crossing the 200 DMA is now again at those levels. It has till now stayed for 14 days above the moving average.

There is a great lot of sentiment attached to the 200 SMA. It can be defined as the line between bulls and bears and the same can be seen today as the index is making every effort to stay above 200 SMA levels.

When index is near such levels there can be sometimes multiple testing of such levels as the struggle unfolds between the bulls and bear.So expect more range and reversals at these levels.

Infosys results : A lesson again forgotten

Today Infosys was down 10% after announcing the results. Being an index heavy weight it contributed 50 points decline to Nifty which was down about 86 points.

Looking at the charts its all scary with big down candle and one of the biggest ever volumes in stock's history.

But one historical pattern stood well. Infosys reverses direction after the results. If the stock is rising then it declines and rises if it has been declining for last 1 month.
This particular pattern has been in play for last 3-4 quarters and was evident today also.

The stock for sure has strong supports at 2900 but this kind of strong candle can for sure has follow on effects for song time.
Also it has set a big resistance at 3300 levels which is the top of today's candle for quite long time.

Pls read Disclaimer.

Nifty Fibonacci chart

Let me post Nifty chart with Fibonacci retracement. The upmove started at 38.2% levels and in process has given a 5 day high closing value that also with above average volumes.

The move has come when everyone was so bearish in the morning. Hearing others view I wanted to change my own view to bearish but then I looked at the color system and saw that the Daily color is still in Buy mode though it reduced from Lev Buy but still in Buy and the weekly was also in buy mode.

This move coming at the trendline resistance from Nov and Dec highs gains importance now as the shorts has been squeezed now.

More details later on the implication of such move.

Trend Example: The 4 hour trend supports the market

In the previous post I mentioned that the 4 hour time frame is in bullish mode with 5750 as trend changer.

Well today the Nifty is still above the 5750 levels and has closed the down gap in first hour of trading itself.

Coming to color of Nifty

Daily --> Buy mode from Lev Buy and Weekly --> Buy mode with 5700 as crucial trendline system level.

Today's volume signature needs to analyzed closely as it can provide the future stock movers.

Trend indicator with multi time frame

For quite some time I was working on a trend indicator. The trend is derived from high and lows with stop loss based on ATR. This is quite common and I just combined these two techniques.

Using highs and lows price as trend is reduces lag and the stop loss gets adjusted as per the volatility. The ATR is the one of the best indicator for gauging the volatility.

Now the major change I did was to use multi time frame indicator with base time frame. For example with 1 hour trend I use the 4 hour vales and then look for confirmation. When confirmation then its one side otherwise trade less.

A simple screenshot. The Blue line is 4 Hour indicator while the green and red is of 1 hour.

Trading based on multiple time frames is a good technique and can be quite useful in choppy markets.
The best use is to detect what is larger trend is and then position the trades based on that. The smaller timeframe then gives the entry point.

In the above chart the the profit booking sign came at 5850 and has been in sell mode based on 1 Hour time frame. The 4 Hour time frame indicator is still bullish with stop at 5750.

The strategy for traders would be to go short 50% at 5850 and then book profits at 5750. That is for short time frame traders and for institutional traders would be to go short on break of 5750 levels.

The same kind of strategy can be applied for any indicator. More on this particular indicator later.

Related Post:  Nifty Trend Indicator with multi timeframe update

Nifty IV and HV: Present Analysis

Nifty's HV of 10 days went below 10 and then rebounded. The HV (10 days) has been a good indicator for reversal from the top.

As can be seen the index reversed from the Jan top when HV (10) made a low below 10.
The HV (10) made 52 week low in July but the index did not fell sharply instead stayed in range abd broke out later.

This time the HV (10) moves below 10 with index also at trendline resistance. Nifty has surely seen given up 3% from the top as of now.
Analysing the HV of 30 days for Nifty though tells a different picture.

The chart shows HV(30) and IV's in a uprising channel which we discussed earlier also. Nifty IV moving higher. The difference of HV (30) and IV is less than 1 indicating mean values for them as IV seems to be optimally priced in.

The Nifty IV from last 2 weeks are consistently below 20 levels which on break of 20 can lead to one more burst higher.

As of now the options and IV's indicate more of range trading. For any breakout trades based on HV and IV one could watch the HV (10) cross of 15 and IV's move above 22 can be bearish for markets.

Related Posts.

Nifty IV's what are they foretelling

Copper: At Breakout levels

Copper is at major trendline resistance after bouncing from below 50 DMA.

The setup is very similar to Gold a few days ago which broke out from the triangle formation.

Copper being regarded as barometer of economy will be worth watching. The effect of Europe rate rise will surely reflect on this commodity as it is highly sensitive to economy growth.

Action worth watching:

Nifty Why so much confusion?

The markets are best place to get confused and its even better when everyone also is in same boat.

Well going by the Color system lets see what is the picture.

                Weekly --> Buy mode    |       Daily --> Lev Buy
          Start Value -->   5760          |       Start --> 5550

     Trendline System          Stop  -->      5800       ( Its not the normal trendline.Details)

If some can guide me on how to put these values on a different page on this website then I am glad to put the color, start and stop system for daily basis.

Nifty the same old pattern playing again

In the earlier posts there was indication that we can see a Sep 2010 kind of steep rally.  Post 1 and Post 2.

Well that came true and Nifty came to striking distance of 6000 levels and has a 10% upmove and we captured about 7-8% of that move.

What from here? That's a good question and many are questioning the move and many more are searching for direction.

First lets see a chart comparing the Sep 2010 and the present move.

Both rallies had same starting point at 5350 and the same exhaustion  at 6000 levels.

Analyzing further the number of bullish days are 11 and 10. The consolidation days at 5950 were 8 for Sep rally. This time the rally had 3 days as of now.

The index though has one bearish setup of bearish divergence and that also at trendline resistance from last 2 tops at Oct and Dec. But seeing Hing Kong index breaking out from such a similar setup the bullish options are open. HSI chart:

The recent volume action in Midcap and small cap index with better A/D across broader market weighs higher for bullish options.

Nifty and SPX in X O view

The Emerging market ETF EEM has broken out of the consolidation. Read the post here.
The etf is relatively bullish than SPX which is a major turn in the assets allocation globally.

Lets see how Nifty is performing relatively.
First Nifty vs EEM in a relative chart:

The ratio has been in range for quite some time and has is at the resistance trendline.
The 50 SMA is getting flat which is a good sign.

This shows that India is still underperformer in emerging markets.

Now hows the Nifty vs SPX. Well that's showing bullishness.

There is first breakout from the double top of X's which is highlighted. Though it is still below the bearish trendline but the ratio has rising bottoms.

So overall Nifty is for sure signs of bullishness but the months of under performance still lingers and that itself can be good trigger for buying by funds.

Socioeconomics: The Cup that counts

India winning the ICC world cup is a moment that will be cherished and remembered for a long time to come.

This event will leave a big impact on the Indians and for sure can change the dynamics of sports in India and subcontinent. The Bhupathi Paes winning the finals and becoming top seeded in doubles was all lost in the news.



The hope that was materialized will provide new confidence to Indians and this for sure will reflect in the equity markets in times to come. As of now it would be difficult to quantify the impact.

The frenzy will continue to IPL and for sure the Media sector will all be flaring up.

The equity market did cheered with close above 5900 levels. Was it the Cup effect? It seems so.
The FII ownership at 18% (as of Dec 2010) is quite low and we Indians cheered to the news.

India Sectoral Trend Weekly 1 Apr

Recovery across the sector with just only 5 in Sell mode and 12 in Buy mode. Nifty has also come to Buy mode.

This reinforces the view that stating in earlier posts that market is gonna rally after the Nifty Bullish divergence and VIX rise in tandem with Nifty.

The rise in beta indices like Realty and Infra has been with good volumes shows appetite for Indian stocks at low levels.

The broader market index BSE 500 has also come to Buy mode while the small cap index is still in Sell mode.

The IT index though is still in Neutral mode which shows that rally in more in the beaten up sectors.

The weekly color:

The breadth has improved a lot and that was evident in last weeks State of Market post.

EEM: Emerging Markets new high of 2011

Emerging markets etf EEM has made a new high of 2011 and has broken out of band of 48 and 44 levels.

The breakout has come with bullish gaps and above average volumes which is a bullish sign. The range gives a target price of 52 levels.

Worth noting is the recent uptick in the relative performance with SPX index.

Chart:

Earlier post on EEM
Charting the Emerging Markets path

Nifty: Why 2011 is not 2008? Pattern repetition not happening

The 2011 first quarter looks quite similar to 2008 first quarter in some respects.

The market makes a top and then sharply falls. Then after being sideways for 4-6 weeks a rally comes. The rally soon falters and rest is history.

But the study shows that the pattern will not repeat itself. The initial analysis suggests that the signature of the move is different but the complete answer can be know in next 2 weeks i.e. by mid April.

First the charts showing the two periods.

The pattern though looks quite similar as mentioned but the key differences are:
1. The rise after the fall has been much stronger this time.
2. The volumes are better on rise for this rally.

Analyzing the 2008 pattern the index was above the 50 week SMA for 2 weeks and then in 3rd week the index closes below the 3 weeks low. The high of that week then becomes the resistance with ~20% fall coming on break of the crucial point of breakout from 50 week SMA.


The above are quite famous pattern for any down leg and is called A-B-C pattern. More details later.

Now coming to present, the Index has come out of the 50 SMA and will close above the 50 SMA for 2nd week in a row. If we consider this week as breakout point then the weeks low at 5660 is the crucial low to be maintained. For any fall to come then the next 2 weeks will be pointer.

So the 5650 (~ lows of 5660) will be the decider for the pattern.Keep watch on those levels.