Month: April 2010
This is a follow up to a post I had done on the 19th of March on inter-market associations for the swing trader, especially the kind who takes his cues from overnight moves in the SPX or the morning moves in the Hangseng or the Taiwan index. You can find my last post on the subject here.
I want to give a shout-out to Manu who follows the Taiwan index and had requested for the post.
That all the world markets are inter-linked is a foregone conclusion (especially for me) and the same can be verified by plotting their charts on google or yahoo finance where a study stretching back several years can show you similar peaks and troughs.
With that knowledge as a background, one can use one market to predict the moves in the other simply by using the popular “revision to the mean” approach.
Here’s a chart of the co-relation:
The traditional co-relation factor between the Nifty and the SPX and Hangseng is 90 % whereas for the Taiwan index it is 73 %.
Now if we look at the 50 day average one can argue that the Nifty has underperformed vis-a-vis the SPX and the Hangseng.
The 10 day average shows the pendulam swinging towards the historical average and the 5 day shows a break-down in the Nifty- Spx relation, but not the Nifty-HSI.The chart shows that the Nifty-Hsi and the Nifty-Twii relation has gone back to it’s historical average
We can analyse 2 things from the 5 day average data the chart shows :
1) The Hangseng and the Taiwanese indices are highly co-related at the moment to the Nifty ( 5 day average = historical co relation) .One can take cues from these markets for the Nifty session for the next few days.A higer/ lower close there should mean the same for the Nifty.
2) The breakdown between the SPX and the Nifty brings the principle of “revision to the mean” in play.So either the SPX will correct over the next 10 days or the Nifty would rise over the next ten days to ensure balance.
Remember these are only cues to take note of. The best trades will always come from the chart which is open in front of you!
Couldn’t resist. but I closed out 3/4th’s of my shorts at the close today.
Here’s why:
Regular followers of my comments on this blog and on Just Nifty would know the similarity of this chart with the one I posted last Thursday, exactly a week back.
To be noted is the location of the POC very near to VAL and in a downtrend implies that strong hands were buying into the close.So I had to let go of a few shorts…
For tomorrow if we get an open around POC, one can buy for a quick 30-40 points with a Sl just below today’s day lows.Remember open has to be around the POC.
Last Friday, the index moved between the two ends of the bracket 5305-5395 and subsequently we have moved the same range all these days up until today afternoon.
I expect the tape to check for unfinished business at the lower end of this bracket (5305 thereabouts).From here it can be value area high or today’s lows depending on who prevails.
Below 5260, the high volume POC at 5225 calls.
I missed the commentary from Viren today, but I held on to this email he had sent at the close on Tuesday.
Reproducing here …
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Some closing comments before I move..
Market Profile points to a move downward in next few
days.This is evident from the lower value established in trading today.
Option data though range bound btw 5300-5400, points to
a weaker 5300 PE as opposed to the 5400 CE.
So we may see break of 5300 PE OI, if not this week then
definitely next week.
My money is on the short side for my swing positions
in the short term.
April 13, 2010 3:17 PM
Hope to see you back soon, buddy!
I had last commented on Crude late in January in this post here.
We had observed the range between 71 and 83 and noted how 71 was a short term bottom.
I have always felt an inclination to study more about crude after the monstrous rally it had at the end of the last bull run.Generally when crude rises, it takes everything along with- stock market and inflation included.
It is also my belief that financials and real estate lead at the start of a new bull market and generally energy and commodities are the last to rally.
So the fact that we have now broken out of the 83 level will mean higher inflation which brings higher interest rates and that means that this bull market is on it’s last few legs.
This may be surprising to a lot of people but the steep climb from last year may have taken away a few months from an otherwise typical bull market in stocks
One of the biggest memories from 2008 was the crash of Crude from levels of 148 to about 33
At the moment, we are talking only of a minor correction in stocks in the very short term, but if crude keeps exploding higher from here to about $105-$120 we may be looking at this bull in it’s last breath.
Up-Down-Down-Up and the result was a neutral day.
Today the seller showed up as expected at 5400 ( +,-) levels and promptly took the market right down.I got into a short position at 5385 on the reversal from 5397 and booked out near VAL, which I expected to hold. It did- only for an hour and I got into another short position at 5251 from which I got properly whip-sawed and made an exit at 5374.The result was also a neutral day for me.
The whip-saw is the subject of today’s post and my reason to be slightly bullish on the market for tomorrow. Here’s the chart :
We knew from yesterday’s chart about the presence of the seller at 5395-5400 levels.From Today’s chart the buying tail from 5345 shows the presence of the buyer and his intention to defend that levels. Incidentally 5345 is the break-out level from a few days back.
I have often twisted James Dalton’s question quoted in my post here (and with due apologies to him) to find out a bit more about the buyer and seller. I often find myself asking during the trading day:
What is the Buyer (seller) doing?
Is he doing a good job in his attempts to take the market his way?
The seller had his chance to drive the market down today and failed ( besides causing me losses). We have noted earlier that his actions have been only responsive.
The buyer managed another higher close in value.He will take on the seller now at 5400 levels and I expect him to win this time around. This should point to a print of price above 5400 levels tomorrow.