08 May 2011

Nifty : Cloudy Picture ?

Lets take a look into Nifty charts with Ichimoku Clouds overlays. It had been a good indicator atleast for Nifty in recent times. The chart below is on a daily time frame and lower to it you will find the weekly Nifty chart with Ichimoku clouds and 50 and 200 period moving averages. We will concentrate on the clouds for this post.

Without going into much details, I would like to point the key levels and times when these clouds did the trick. In the daily chart you can see how the clouds stopped the non stop fall since early Novr, later on it did not allow the reaction to go beyond the clouds. The mid Dec fall was as well protected by the clouds, and later on in early Jan though did not stop the reaction from going higher, changed colors to indicate the start of a new trend. You see how Nifty went into shambles when the cloud support broke.

Now interestingly if you see the Weekly chart, you will realize why Nifty stopped at 5200! It entered the cloud support of a higher time frame! Since then it climbed higher taking support at the clouds. Only to test the cloud once again last week. For next week the cloud support exists at 5500 and if we have a weekly close below that, we can surely expect another round of massacre of bulls.

Very cool observation would be to check this on the daily chart. Check the color of clouds around close of Dec, well it was green but changed its color to red! What happened to prices since that? A collapse.
Now see where are we in terms of color of clouds now. It was red few days back, but has now changed to green! Will it mean something again?

Given the fact, that we are close to cloud supports in both the time frame. The best trade would be to initiate longs. We all know that not much below from here are the triggers to get out in case the market keeps getting drubbed. So the risk reward is very much in favor of bulls. We all know Nifty is extremely oversold. And what I came to know, recently was that the 9 consecutive losing days in Nifty which ended on Friday was the longest in last decade, I am kind of getting more confident that going long now is the best trade one can think of!

07 May 2011

Nifty : Falling Wedge ?

Nifty : PCR

Nifty : Fractal Follow Up?

Nifty : Crude way?

We all know Crude Oil Prices are very much a guide to where Indian Markets are headed. The conventional wisdom says that higher crude prices are bad for commodity importers like India and China. But this is not always the case and we all now know that both these prices behave in all sorts of correlation.

Ideally I believe in a typical economic cycle :
1. Both go up together (coming out to recession, easy money injected, all markets go higher)
2. Next price of crude go higher which pulls Nifty lower (concerns of Inflation and threat to growth due to it, while money from equities shift to commodities)
3. Then we see Nifty go higher because crude is going lower (concerns of demand slowdown pulls commodities lower, relief rally exhibited by equities)
4. Finally both go lower together (realization that growth has gone "for ever", there is wealth destruction, all markets slide)

The chart above show Nifty and Crude Oil from April to September 2008. I have marked the four phases in the chart. Though this pattern will not always be found, this small duration speaks a lot in terms of how price of crude governs Nifty. These were the times when every small movement of crude was tracked by Nifty traders and it looked like the only aspect that matters. In a larger time frames as well, I expect this kind of relationship to exist.

The idea of this post is to identify the phase we are in currently. The above chart shows the YTD comparison. We see a fall in Nifty from start of Jan to mid Feb while crude is range bound. Then suddenly there is a surge in both. Nifty has corrected since early April highs and looks like crude has just started that correction, with a 10% correction in a single day.

So are we in Phase I, when Nifty and crude rally and corrections are together with a small lag? Phase 3, when falling crude will provide impetus to equities? Or, Phase 4, when all assets will come tumbling down together?

The least likely possibility is 4, for it we need a major systemic breakdown in action (something like Lehmann collapse?). Though I believe the system had always been broke, we still do not have the price action confirmation.

Next likely Phase for me would be 1, when we see Nifty and crude rising and falling together. But the Nifty has been falling since Nov last year and crude has made a top as recently as May.

Most likely scenario is we being in Phase 3, when a correction in crude will give much needed relief to bullish traders. The equities are near a support zone of 5300-5500 and commodities are falling, rate hike has been done with, mood is extremely sour and analysts on TV predicting 5000, looks like we are well in track to go 6000. Or are we in Phase 4 :P !!

05 May 2011

Nifty : Correction Confusion ?

The Indian Market was shaken and stirred on Tuesday. RBI raised interest rates more than popular expectation and interest rate sensitives nosedived, pulling Nifty below 5700 and then 5600. On Wednesday selling continued and Nifty test 5500. The selling has been furious, but something which I wanted to point out earlier but got late was the fact that the market crossed these zones while coming up with a similar speed. Angle of reflection is always equal to angle of incidence.

The chart below will hopefully explain where I feel Nifty can go in near term.