Month: August 2010
As expected after the strong US close, the market gapped up big at the open this morning, very close to the HVN at 5465 we have been tracking from well over a week.
Infact it was to be the high of the day.
Ideally it was the perfect opportunity to set up a short at a proven level, but in view of the large gap and the possibility of continuing momentum, not a high probability trade.
Anyways the sellers entered and drove the market lower to Friday’s lows of 5397 another HVN, from where the buyer emerged again.
Incidentally in profile we also consider a gap up as evidence of a buyer hand.
So we have a buyer at 5397 and a seller at 5465. It remains to be seen which side it resolves. It’s two-all at the moment.
The other HVN of 10807 in the Bank Nifty played out again as it did on friday.
A perfect copy of the action of friday below 10807, with similar results.
This time we were not to be left out.
So this one is setting up as 10705-10807-10920.Either side 100 points to be made.
It remains to be seen if both the indices move up together.
We had a real fast move in the markets yesterday in the afternoon session with big money and the longer time frame coming into the markets to take off 200 points in the BankNifty and 70 points in the Nifty in two hours flat.
Despite the early morning weakness, what stood out for me was the market’s penchant to respect one of Market Profile’s most famous rules-the 80 % rule.
In fact Profilers would say that market made that high just to respect that rule.
For the un-initiated in Market Profile, the rule states simply :
“If the market opens (or gets outside of the value area ) and then gets back into the value area for (2) consecutive 30 min bars the 80% rule states it has a high probability of completely filling the value area i.e it goes from value area low to value area high or vice-versa “
Let’s look at the chart of yesterday :
Notice the high of the day is the value area high from day before.
I want to quickly take you back to last week’s weekly report posted last Saturday here on the blog.You can find it here.
I’ll re-post this chart from that post.
Based on that chart we called for an expiry above 5465 which incidentally happened.
Now I want you to apply the above rule ( 80 % rule) to this chart and see what happened.
Here’s the chart of the Nifty future ( September values ) with that 80 % rule done.
Came from above value high and moved to value low, though I’ll be the first to admit that I didn’t think that it was possible to get that done in one day.
The 80 % rule is an 8 wins in 10 trades probability, a very good ratio, and a must to have in every trader’s armory.
Looking ahead to the open on Monday, the AUD/ JPY our barometer for global sentiment at the close of NSE trading, didn’t reflect the pessimism seen in the markets in the afternoon session.
We closed our conservative shorts at the closing bell on friday.
We are set up for a very interesting expiry this month, made all the more interesting by the big push lower in the last half an hour of the day.
Have a look :
What looked like a day where selling had been controlled at the 5465 HVN level, which stood out for the major part of the day, turned around for a close exactly there.
This is the first time in four days we saw selling into the close. The chart shows the big pullbacks developing in the second half of the day.
The Selling was even felt in the Bank Nifty which had it’s first close below value area low and below the 10980 level we have been watching in several weeks.
Since tomorrow is expiry I want to quickly turn my attention to the action tomorrow, because tomorrow is the one day in the trading calendar when action gets dictated by open Interest and little of every thing else.
Let’s look :
The IV range calculated by our Vix Calculator is 5518-5420 in the future and 5516-5409 in the spot.
By all accounts it will be volatile, as the PE writers sitting smug at 5500 PE will be facing the heat.I think many of them didn’t anticipate this closing today and if they wilt tomorrow then 5420 will happen.The 65 lacs in OI at a current price of 37.45 will ensure that easily.
However if you look at the chart closely, then you will notice that despite two days of selling where we have seen the Nifty come down from 5540 levels to today’s 5465, we have not seen a great reduction in the 5500 PE for September. In itself it tells us that the PE writers are confident that this downtrend will not continue.
However tomorrow it is not about September but about August.
I mentioned last month that the VIX formula by itself is nothing but a range.The key to the expiry is always in the Open Interest.
For tomorrow the key will be the 5500 PE.
If unwinding is seen then a short below our HVN at 5465 will be a safe bet.
We saw the volatility in the Bank Nifty first hand today, where a move below VAL for most of the morning session turned around to catapult the index back above value high by the afternoon.
Have a look:
The index ran in danger of closing below value low, buy a strong showing by ICICI Bank, SBI bank amongst others took it back up for a close yet again higher than previous value.
You just cannot short this index till it closes below value. The sellers are present but not aggressive enough and dare I say a bit mortified by the strength shown by buyers. We did another of the now common 100 point runs within minutes.Direction Up.
The chart shows the presence of a small seller in the 5535-5540 region.
He has managed to move down price by about 20 points in the past three days, but we feel that he may not be able to keep it for long.
We’ll know tomorrow.
We are 4 sessions from expiry and nothing carries more attention this coming week than how expiry would play a role in the stock market fluctuations this coming week.
With open interest scaling new heights every expiry, there is no denying the large interest the expiry week holds for traders trading on the NSE.
Let’s look at what the Nifty has done this month of August from the first trading day since July expiry.
The blue shaded region represents value area for this series.
As we can see that price is currently above value area, implying that buyers are strongly in control of this tape.
5467 represents developing value area high and 5433 the POC, both values which we have talked periodically for the past two months.
They will have a role to play in the future too. So remember them.
Based on the above chart, we are set to expire above 5467 levels.
We will look at this chart on Wednesday at the close.
Here’s the bank Nifty :
This index confirms the action in the Nifty. Same inference. Watch the VAH & the POC.
Looking at the same chart from a weekly perspective, we get an idea of how strong this index has been.
Value has been building steadily higher.
The conservative trader will never attempt shorts above value area high. If you do want to short take a small position when value high is broken and add when value low breaks convincingly.
If it doesn’t it best to reverse and go long and with the trend, as can be seen in the shaded regions.
To close let’s look at the Nifty weekly:
Certainly not as strong as the Bank Nifty, but that large value area in that last week tells us the the longer time frame player is getting active in the index and we may see a move ( much of it happened already) after a lot of sideways action.
Enjoy your week-end.
We had an inside day in the markets today with the Nifty and the Bank Nifty, holding on to the gains from day before.
This market has been strong since the break to the upside of the 5485 region which we had identified realer as a seller’s zone.
Have a look at the charts :
The Nifty stayed well above value area low even today after a strong showing yesterday.
We have a bit of selling to overcome at 5535 before it moves up again to 5560-5585.
Value areas will be in play in the Nifty especially after the activity today.
Let’s look at the BN.
A perfect inside day and the weakness of the afternoon was controlled near the 10980 region which was the point at which the big buyer showed up yesterday afternoon.
We’ve been discussing the strength in this index and the fact that there has been no weakness evident.A close below VAL will be the first sign of a fall in the daily or a trend change will be below 10800 levels, still 200 points below.
Till then it is a buy on dips.
I will put up some weekly charts over the weekend.
Let’s begin by looking at the charts of the Nifty and the Bank Nifty future.
The Nifty had a slowish start to the day, but it was building up to the violent break out we would see in the afternoon.
The Bank Nifty broke below value high to move to value low, where it failed to attract a lot of selling. A move above VWAP was confirmation that the mini-downtrend had ended.
We used the quiteness of the morning session to share a couple of ideas on trading instruments. Shai did a good job in talking about moving averages and their role in trading.
Have a look at this chart :
The instrument we have chosen is SBI and the chart shows the impact of a 5-day moving average on it.Neither the instrument or the moving avaerage has impact on the study. The moving average can be 5, 10, 15, 50, 20, 70 ,1030 or any number the analysts come up with ( incidentally without any reasons).
The charts clearly show that the average lags price.Each turn of the moving average is 2 bars ( 2days) after price has moved.We never recommend the moving average for intra-trading because of this lag nature.
The lag can however be reduced slightly by moving to an EMA or DEMA or even TEMA.But the lag remains and it cannot be eliminated.
That’s why in an intra-day set-up becuase of the lagging nature, it is not safe to base decisions on it.
So what is the solution?
Simple, add volume to the moving average through something called VWAP.
You don’t expect me to talk about problems, without giving you solutions, do you?
Have a look at the same chart as the one posted above of SBI, this time with the VWAP.
You see how if you would have used VWAP, every turn of the market would have been addressed. The trend of the instrument and the indicator is up and VWAP would have kept you in the trade.
At Vtrender-2, we keep bringing you analysis which keeps you ahead of the curve.
Most of our trading mistakes emanate from the wrong things we pick up.If you can reduce mistakes in your trading, then you take that half a step forward to being a successful trader.