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.