09 January 2011

Nifty : Volume Analysis

I have tried to do some volume analysis for the Nifty since the May 2010 lows of around 4800. Check the chart below and we can try to infer later.

Label 1 : 4786-5478, 692 pts
Label 2 : 5478-5349, 129 pts
Label 3 : 5349-6284, 935 pts
Label 4 : 6284-5937, 347 pts
Label 5 : 5937-6339, 402 pts
Label A : 6339-5690, 649 pts
Label B : 5690-6179, 489 pts
Label C : 6179-5884*, (not yet terminated)

Points to note:
-Wave 1 was strong in terms of price gain and had good average volume and highest total volume. Sign of correction to be over and money flowing in hard to get "stuff" at low price.
-Wave 2 was very shallow correction with almost equal average volume, though relatively less total volume. Most probably lot of trading happening but no one willing to sell as higher prices are expected!
-Wave 3 was very strong in terms of price gain and both average and total volume were high. This was the period for which most smart money waited.
-Wave 4 had good average volume, though it lasted not for long and as such had lower total volume, maybe still higher prices expected.
-Wave 5 had lowest average volume as well as total volume, as seeing Nifty at extended valuation and nearing long term resistance buyers were less.
-Wave A shows how selling began with a bang, it is having highest average volume.
-Wave B shows period of rebound where average volume of trading is low compared to wave A.
-Wave C though not complete is easily showing signs of damage done and pending.

So what can we make out from this very limited yet typical data points?

What I feel is that though price is king, we also need to keep an eye on volumes that are making those price moves. Like wave 2 having negligible correction though almost equal amount of average volume as wave 1, which is very easily a sign of strong buying interest. Also see how wave 5 had very poor volume (average and total), clearly showing signs of buying interest at a decline and in the same fashion wave B.

Another thing to keep in mind is that trend waves will have higher volumes when compared to counter-trend moves. Wave 1 and 3 had higher volumes than 2 and 4 etc. So as of now we are in a down-trend which even volumes are conforming.


alphabet1 said...


jawaharlal bansal said...

indian stock market has always been liquidity driven.money percolates from top i.e. fiis money and blackmoney,in stock market in india also called smart money.when smart money reaches a top,small invester enters market to make a quick buck,by the time smart money evaporates and small invester is left alone to lick his wounds.unless money comes from bottom i.e. robust growth,stock market cannot sustain at top.

Tarique Anwar said...

market is always lead by smart money, no doubt about that, however you define it. the problem with indian stock markets is that they are too heavily dependent on FII money. no one was stopping you from buying around 2500 when fiis were selling like no tomorrow. long term headwinds are developing all over the world and once those cracks widen we are going back to that hole again

Post a Comment