10 April 2011

Friday : A prelude to Next Week?

All traders are subject to anxiety, sleeping in peace is not what most of them can afford except maybe the day traders! That's the reason why closing price of a stock on a particular day matters. Its a reflection of commitment. Overnight development and just the fact that things may not be the same next day forces traders to cut their position before the close. Similarly, in a longer time frame weekly closing is also having the same substance. If the commitment for a position is not too high traders may get out of a position or at least lighten it up on a Friday.

I have done a study to see how Nifty has reacted in next 5 days (next week) after it closed in negative on a Friday. If a stock loses ground on a Friday in a bull market, we can say that it is a normal profit booking session and new traders will jump in and push the prices higher next week. Friday losses in a bear market do not point to anything significant except that the trend is on (Friday gains may point to short covering). All we can say is that traders (long) are in no mood to wait more, though traders (short) are adding to positions.

Checking the charts above, ( X axis return for next 5 days, Y axis frequency) we see that the 318 instances of a negative Friday closing has led to 155 negative closing and 128 positive closing for next week (49% to 40% in favor of negative). Things get interesting when this happens during a bear market (price below 200 dma). Out of 141, we have 77 negative closing and only 47 positive closing for next week (55% to 33% in favor of negative) . Even during a bull market, out of 165, we have 73 negative and 74 positive closing for the week ahead.

So we see that a Friday weak closing is not particularly great for the coming week. Rarely so in a bear market. But is it so, or are we trying to find pattern in randomness. Let me try with Friday positive closing in next post to clear this.


prabu said...

May be it hit the ceiling of your earlier chart
[like an expanding triangle trendlines], and is now falling towards midline?

If you post that chart again, updated till date it will be useful to followup.

Tarique Anwar said...

The crude oil Nifty comparison chart that you are talking about is updated till early April 2011, so I don't think much would have changed, I will keep a track of it, and see if there are any significant development in it maybe few more weeks from now.

prabu said...

Tariq, i meant the nifty chart, not the crude oil correlation.
You will notice it in the link.

Tarique Anwar said...

yes got it.. sorry i got confused.. BTW any reason you commented about that chart in the above post?

prabu said...

Yeah, I had noticed your trendlines in that chart, with a halt and go at the median also. That made me think that trendlines will be valid since it caused the typical stops.

But from your chart I am not able to extend the lines to present price structure,
the present 3 days back top may have occurred at the top of that trendline top.

You can try overlaying the 200ema, 200sma to see if they may have a bearing too.

I posted the comment here since this was the latest post, not for the AdvDec reasons. I thought you would see the latest post comments.

Yourself, SS and mo-k were the only people bringing out newer dimensions into charts tables and displays.

Tarique Anwar said...

firstly, thanks a lot prabu for the encouragement! i am glad that you like it, and will try to bring out good quality analysis, as much as i can.. there is a lot of data out there, and we have just seen a small fraction of it.. i follow many internationally respected technical analysts and the work they do is amazing.. will see if i can repost their articles here itself..

coming to the chart development, we have seen nifty retreat from the top trendline, and if what we observed is correct, we are going to see a deep cut (till we reach the bottom trendline), the way global markets have fallen today, looks like we will hit mid line soon..

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