10 December 2009

NIfty : Trin in Support Zone

For last 20 trading days which means almost a month Nifty is in a tight range of 4950 to 5150 if we consider the closing prices. This kind of range bound trading as experts say cannot carry on for long. Either the bulls or the bears will finally give up and the market which has been suffocated will break free, the move can and should be a fierce one, in whichever direction the market decides to go. I am sure readers must also have noticed that US market is also in a tight range. Have not been tracking other markets but I guess it should be more or less the same for all of them.

This uneventful though interesting phase of trade is definitely good for option writers, where a "Strangle" pays them handsomely. But it can kill you if you do not have appropriate stop loss, as you know one leg of the Strangle can give you enough loss to take away months of profit.

Lets focus on the TRIN chart which has started giving some "confusing" signals. Firstly what we see from the blue arrow is that though the TRIN was rising, Nifty kind of moved upwards. Later from the start of red arrow Nifty has virtually not moved at all but the TRIN has fallen quite dramatically! Both these observations are against the classical belief of "rising TRIN is bearish and falling TRIN is bullish".

Next point to be noted should be that TRIN is back into the support zone of 0.55 to 0.7, so we can be forced to think that TRIN should bounce from here making Nifty ideally go down or atleast go sideways, but definitely not go higher, unless something which happened around the blue arrow happens again!

I am not going to stick my neck out this time to predict where we are headed, from this point, but people interested in betting on markets (with getting a kick out of life, or living on the edge etc kind of attitude) can surely buy 5100 Calls and Puts simultaneously. If this breakout or breakdown has to happen in December (there is a large probability) then I am sure gains would be worth flaunting! The target of this should be 5350 on a breakout and 4750 on a breakdown.

Coming back to subject, as TRIN values for any particular given day can be very absurd, we use 10 day SMA to cut the noise and show some kind of trend. So for each day we drop the last day TRIN value and add the latest one to get the 10day TRIN SMA. Interestingly we have dropped a low TRIN and added a high TRIN but still managed to get a lower 10day TRIN SMA!! Are we missing something that eyes dont meet or are we being fooled by randomness!


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