Month: October 2011

Target done. Now what?

At the time of this post the NF is still in the Initial Balance or the first 60 minutes of the day’s action.

We have a gap at the open which is not yet covered.

The NF maintains itself in the smaller 4904- 5060 bracket within the larger 4725- 5233 bracket.

There is a gap below the smaller 4904- 5060 bracket and a gap above it also .

Using reaction theory we can easily measure who has greater control within this smaller bracket.

Reaction theory of Market profile is nothing but the amount of market movement created by buyers or sellers.

Within this smaller bracket we had a reaction measuring 35 points yesterday in the afternoon which took the market from 4974 to 4940 which was the day vwap and from where the dominant party took control again.

We also measure that level as the pull back low, as shown in the chart.

The other slightly bigger reaction was from 4937 to 4773 on Friday which took the market down  64 points.

So a reaction of 35 points from the day high will put the market at or near 5020 in the futures.

Anything beyond this, will in all probability put the market near 4990 which is near the target end for a normal variation day with a 2IB target.

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Nf Today

We reversed our overnight shorts in NF and BN in the opening session and saw it print it’s way to good profits during the day.

NF:

When we track Orderflow, it is very important to note down the levels at which the buyers and the sellers show up and their influence around the same.

Today’s buyer was at the same point as Friday and will be an important reference point in the sessions to come.

BN :

The same picture in the BN chart as well.

In the profile chart, after the consolidation and the balanced profile of Friday, a big move was on the cards once we broke value and range.,

Have a look at the chart below :

Two things are clearly visible in the chart :

1) an entry into the previous smaller bracket as shown in the smaller blue rectangle. A bracket is considered a larger value area and once it enters this zone it can move right through it , similar to the 80 % rule we track during intra day

2) The balanced profile of Friday, projected a move back to the day’s Point of Control ( POC) and a trending move to begin from there which should have gone past the day’s value area and range.

All the above happened. the buyer was due.

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NF & BN of Today

As we move further into this bear market, we are going to be witness to changing conditions not just of our own local market movements but from others as well.

This was projected yet again through the big gap open on Friday, a condition not generated by our own dealings. We tried to be ready through a study of the Euro, Dollar and the Spx which we did ahead of the Holiday in this post here, each of which went as expected to the given targets.

Bear markets are a continual battle between deteriorating fundamentals and the governments attempts to abort the cleansing process. That is the scenario for very difficult trading conditions.In 2008 even though our market was not as affected,  the liquidity pump given to industry is now showing it’s ugly head in run-away inflation which the RBI is having a difficult time to manage.

The news from Spain and Italy and the Fitch downgrades reversed a tear away rally which 3 days earlier had reversed a water fall like decline!

In such markets one has to be willing to reverse positions quickly, because  fundamental perceptions can change fast and profits evaporate. 

 Unless someone had inside information that the downgrade was coming there.

Weekend Musings

Here are some longer duration profile charts

From Right to left, profiles show a 2 year, one year, 3 month and a one month profile.

Notice the point of control moving lower consistent with the selling seen in the markets.

Longer term investors should pay attention to the value areas to confirm longer term investments, should the market provide investment opportunities.

The value areas are in green and the point of control is in red.

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Longer duration profiles

As the NSE prepares to close it’s afternoon session, it has to factor in 2 closings on the spx and another 2 on the European bourses.

Considering the kind of climate we are in , it’s not an easy job.

The last 2 days in the US markets have provided swings of 45 points each, and if there is one time frame movement any one way, then those markets could be up 100 points up or down!!

This past weekend I could not post a chart of the US dollar. Here it is :

We spoke of a move to 80.5. The dollar index tagged 80.43 before retreating.

79.4 and 78.9 will keep that uptrend intact, before it finally takes out 81.

Here is a daily chart of the euro to confirm the view.

There is small Short term support in the 1.315 zone, but sellers will be back around the 1.35 region.

Finally the spx futures :

After the reversal off the aug lows, this market looks like headed for 1127.

Strength above 1127 will keep the whipsawing moves and the range still alive.

We are seeing the same in the NF late afternoon yesterday  and early this morning.

This chart was posted at vtrender-2 last night. :

The current auction is in the centre of yesterday’s double distribution in the entire single prints of the DD

Let’s see whether it resolves to the  upper or lower side this afternoon.

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Holiday ahead

One of our readers mailed me a chart showing the 75 week moving average.

I reproduce the chart for you.

I’m not a big fan of moving averages for shorter term trading, their utility lies in identifying trends.

However the 75 week moving average has long been considered a dividing line between bull and bear markets.

The above chart shows a 75 week average against a weekly chart of the Nifty spot.

Besides the average what I found interesting was the pattern developing in September 2008 against this one in 2011.

My time cycle counts put us in a new intermediate cycle which should be in week 2 by now. The cycle projects a consistent range of 1000 points for a quarter, which means that should we not fill that gap between 5060 and 5110 we should be forming a left translated cycle which should take us to 42xx by the year end.

Back to the subject of the 75 weekly, let me put up one more chart :

This is the USD chart at the 75 weekly.Clearly shows that it still has to overcome it to be considered a bull market.Once this chart starts moving northwards, equities should begin a waterfall type decline.

A shorter duration  chart of the USD futures ( not uploaded here) , shows that should the dollar penetrate 79 early next week, it should have an easy ride to 80.5 and 81 which means that stocks the world over will be under a lot of pressure through the week.

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75 weekly