Month: March 2010

I want to begin by thanking Mr. Illango for the recognition he has given to this blog on his site http://tradeinniftyonly.blogspot.com/.

We are a young blog and require all the support and encouragement from experienced bloggers such as him.Thank you very much.

I also want to thank Viren for the way he has put us all ahead of the market for the past 150 points-up and down. My appetite has been whetted for some more profitable set-ups from him.

I want to share with you this evening the Open Interest table for April:

With the extended holiday weekend coming up, option writers have utilised the opportunity to write both the 5300 call as well as the 5200 put, with an eye on theta decay.

This can be seen in the Open Interest at both the above strikes, which are the highest.

I do not expect any significant movement in the market tomorrow. We may remain range-bound.

However looking further into next week, it can be safely assumed that one of the strikes will give way, as you cannot expect Nifty to be in a 100 point range till expiry.Also OI is above 5 million at each strike, so a break will bring a lot of momentum. Based on the current Implied volatilty the range for April expiry comes to 5000-5500. So whichever way the break-out occurs, there is a 200 point movement to be had either side.

The charts I had uploaded last week in this post on Seasonality and Markets here paint a picture of a bullish early April.

However, even if you take a non-directional view and buy the 5200 put and the 5300 call at around 80 each on Monday (not tomorrow), you will still have a profitable trade on your hands, as soon as you get a confirmed break of either level.

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The seller returned, in a very unassuming manner, and just when I was tired and ready to throw off my short position.Thank God I didn’t.

So what’s in store tomorrow?

The 10 point gap at 5262-5272 created in the futures by March expiry is now filled and we should be ready to move higher tomorrow.Also the stampede to exit near the closing is always an indicator that higher prices are ahead.

Since 5262-5272 has been reached, I would look at an auction between 5272-5302 in the first half for tomorrow.Above 5295, which is VAL tomorrow, price can also target 5320-5325 in the morning session itself.

On the flip side, weakness below 5260 will bring 5225-5230 as in yesterday’s projection.

As marked in the chart I will be watching for the return of the seller around 1.50 to 2.15 pm. He’s showed up twice in two days at the same time and I would be watching out for him tomorrow.

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Those who have been following my running commentary on Market action in the comments section, would have noted that I mentioned that I did not see any intent on the part of the sellers in the morning session.

Well that changed around 1.30 in the afternoon, when the seller arrived to leave his stamp on the day proceedings, as can be seen in the blue oval I marked on the chart.

The way he managed to reverse the trend of the day, leaves me to think that he is not done yet.

I am seeing levels of 5260-5272 and even 5225-5230, as possibilities if he decides to assert himself.

If we get these levels, it will eventually be good for this upmove.

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29

Mar

At the time of this post we are up 40 points with the Nifty around 5340 levels.
The buying which we have been seeing from 5100 levels, seems to be slowing down.
I will strongly advise against initiating new long positions in stocks or indices at these levels.
If you are long on existing positions, tighten your stops or book profits by EOD or tomorrow.
There may be another melt-up, but rest assured it will not be institutional driven and they may look at selling into the move.
I will not be active in the comments section this afternoon, so if you are long the Nifty and the Bank Nifty, keep booking profits.I will have an update EOD.

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I had written on Wednesday night about a break-out move in the Bank Nifty in this post here, and the above chart is testimony to that. I’ll take a 300 point move in two days anyday. The best part of it is that it is not done yet.

My comment on “NAV Management” seems to have attracted a lot of attention, with even Shai dedicating a post to it.

The question I openly ask out is where are the sellers?

Since 5100 on the Nifty, I have not seen the seller make more that a 40 point move in the index. At the same time, the bulls have managed two 80 + point moves. The lack of sellers in the market was telling on Thursday, when we were below VAL for over 5 hours from 9.00 am to 2.00 pm and the sellers could manage only a 12 point move down during that period.Obviously the other party had to take over, and they certainly shook things up that afternoon.As can be seen in the chart,the next day on Friday they managed to hold their gains.This only points to higher prices ahead, but we’ll see..

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The close in the past three years for the month of March has been at the highs of the month. With three more days to go for this month-end, we are at the highs of the month in March.The only question remains, whether we keep these highs or roll-over from here.We will know in three days.

Those three years prove that these things happen.

Still being slightly skeptic, I’ve decided to put the theory to the test now with the SPX. Their calendar year ends in December, so let’s see what their markets have done in December.

Close at the highs for three years in four.

So that is six times in seven occasions on two highly liquid exchanges, across continents !

Odds are, we see higher prices in the Nifty, maybe 5350 or more by Wednesday.

Now you be the judge of that.

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I want to give a big high-five to my new found friends the mutual fund managers and to Shai because of who I could so carefully execute a plan and the move from 5220-5272, which we have been talking about on the blog for a few days now.

Yes, It was on the charts and yes Market profile pointed to the move. Yes, Shai used some option arithmetic and told me this morning that we will get an expiry near 5272, but without my mutual fund manager friends who are so keen to protect their gains for the year, would this move have been possible?

As for what the charts are saying, don’t even think to short before this month is over.

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Step 10 :Now let.

For the Nifty, we have had a break of the 50 point range from last week. Yes a 50 point range again- Nifty is choosing to do this again between 5220 and 5272 last week as against 5100-5155 from the week prior.

But I am not very convinced that we have had a break of the range yet, because it was a single print movement in the first half hour as well as the last half hour below 5220. Not convincing is the way I see it.

So 2 possibilities for tomorrow and they both involve 5220 ( give or take a few)

1) Auction in the low volume 5220- 5175 range, where 5177 should provide a support for the market
2) back in the 5220-5272 range and rotation.

(I am more biased towards a rotation back into 5220-5272, but we’ll see)

I admit it is not very helpful, but our ever reliable purple lines ( value areas ) will show you the way. As before we will play an exit of value tomorrow.

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This is a chart of 4 major indices : Nifty, SPX, FTSE and the Hangseng.

It is a foregone conclusion simply by looking at the chart that each of these markets is connected to the other albeit in varying degrees.

And as you can see they are making their moves together….but that is the broader picture.

I’m here to talk about the minor deviations, get a bit more precise and develop edges in different time frames and to use one market to predict moves in the other.

Sometimes one market knows something the other doesn’t and that’s where the edge develops.

If two markets are in focus, and they move at the same time together, then it does not help, but it is a confirmation move- one for the other. But when these co-relations breakdown one becomes predictive for the other.

This is what I found in the Nifty a while back…

Here is a snapshot of an excel sheet I maintain :

To the right I have closing prices of the indices for the past one year. The box on the left is the co-relation factor with the Nifty.

As you can see, the corelation with the US spx is 91 % and that with the FTSE and the HSI is 90 %. Incidentally Nikkei is the least at 84 %.

Now let’s get to the interesting part :

I have plotted the 50 day and the 10 day averages for the co-relation.

If you see the 50 day average fore the Nifty, it is negatively co-related ( had broken down) and in the past ten days there has been a revision to the yearly average.One look at the 50 day average , 10 days back, would have told me that there has to be a big upmove coming.

The co-relation can work the other way around too…the Spx or the other indices can fall to make up with the Nifty, but the odds are better for one index to move up than for four to fall.

In view of the expected drop on Monday in the Nifty on account of the RBI’s announcement, one would be advised to keep an eye out on global indices and this co-relation index.

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17

Mar

Viren here.
Today’s market action was strongly bullish and though we came off the highs of the morning, buyers did enough to keep sellers at bay.Being above value all day and keeping sellers at bay justified the bullish behaviour exhibited since yesterday.So the day belongs to the Bulls.

I am not posting any charts today, but just expressing an opinion of the state of the market as it is. I have fallen in line with Shai’s view that this market will see Nifty go north of 5300 and more before we see any reaction. His reasoning is very simple- When our friends from across the pacific can take their index to new yearly high’s , how can we lag begind?.So we see 5315 printed tomorrow?? maybe.

From a swing trading perspective I am keeping an eye out for the Open interest accumulated at 5000 on the put side. Yesterday I saw writers behave suspiciously as they were reducing their exposure when the market was moving strongly.Today my doubts were confirmed when EOD stats showed a reduction of 5 %. I need more confirmation tomorrow for me to take action on this interesting development.Maybe, writers are using the low IV’s to square off—but that also means that they are expecting IV’s to increase and we all know what that means.

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I continue to stare at the screeen as the Nifty prints 5260 and I wonder how? To be honest I have had trouble buying stocks here.

My ever dependable NYMO has been giving me a bearish diversion, whilst working out the overbought condition. But the diversion means nothing in the face of this hungry bull which is planning to mow down every bear in sight. Now let me be straight here– I am not a bear in this market, not been one for the past 9 months and it has put me on the right side of trades.All I am looking at is a minor pull back, which has been non-existent. I look towards the west and the S&P and I see it up over 14 days now!. I have never seen a bigger winning streak.

I still contend that these are dangerously high prices to buy into, but if you are nimble the risk may be worth it.

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We have been waiting from Spx 1130 for a pull back in the index because the move from 1044 looked stretched and the upmove looked difficult.

Though we made about 20 more points in the SPX the upmove has been very laboured to say the least.The fact that the index has not given us a 20 point correction suggests to me a lot of strength in the index and I would be surprised to see the index not touching 1200 in the next 3 months.

Even right now at known previous resistances, I am calling for a minor correction of 20-30 points in the Spx, which should not trade below 1120 now.This is keeping in mind the overbought nature of the NYMO.

The VIX chart above is another confirmatory signal.We are below our green line and I have drawn 2 new trendlines in pink. A move above our pink TL at 19.5 should confirm that a short term top is in.

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Here are the updated charts for the NYMO and the US Dollar.

You can find previous comments on these subjects here and here

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The NYMO works for stocks traded on the NYSE, but if you are a believer in the notion that sentiment is global, then it’s truth applies to all markets.

In the chart, you can see that we have entered in the red rectangle only six times in the past 2 years and we are in it now!

Of course in Oct, Dec and Mar the levels are even more elevated than today, but those times were different and the situation is not the same anymore.
There has always been a pull back in stocks once the NYMO has entered the red zone.

Here is another chart, more relevant to our market and to illustrate my point with our very own Nifty:

The red line is the NYMO and the black one is the Nifty.

The NYMO and the Nifty make their moves together-up or down.

The NYMO is due for a pull-back. the Nifty will follow…

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If I had closed my eyes and not followed the trade as it unfolded today, I would have certainly thought that I was looking at the chart of Friday again.

The action in the Nifty today, matched the action on Friday. A Higher open, inability to move higher, then sellers take over, and a ‘ buy the dip’ at a crucial MP point.

For the bulls, one can argue that we moved higher on an end-of-day basis. One can also argue that the action once again was over the POC and VAH from the last day. If memory serves me right, then I remember only 1 day that the market visited VAL from Budget day. Overall very bullish action.

For the bears, I will argue that the bulls have not been able to take the price higher than the opening print by more than 15 points for 2 successive days now.Again the sellers today were able to bring the market down by about 40 points again without much resistance from the buyers.

I am not trying to take both sides here, but trying my best to be objective in my analysis so that we are ahead of the move which is to unfold.

To me, we are definitely seeing buying exhaustion with signs of the sellers getting aggressive.

But I will have to see more of the above statement tomorrow and in the days to come…

…which means that I will be with the buyers as long as price holds up above VAH, will be neutral in the value area and be a seller below VAL.

The purple lines are my decider lines tomorrow.

I have included a chart of Reliance today- a general of this army- which closed below value today.

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07

Mar

We have got the opening of 5135 as expected and posted in EOD analysis from Friday.
Rememeber Buyers are in control till VAH is protected.
Shorts are safe only below VAL. Watch the tape for cues.

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