28 August 2011

Nifty : Market Cycle

I have tried something, through which we can try to forecast a Nifty "Local" High/Low time frame. Its more of an effort to find out what kind of Market Cycle do we have in Nifty.

For it, I have taken all data for Nifty and created a table for monthly average closing price since July 1990 till July 2011. Then I tagged a month  "High" depending on whether the preceding and following months are having average prices lower to the current month and very similarly tagged a month "Low" in case it has preceding and following month average prices higher to the current month.

Though this is not a very correct way, I saw that it can fairly accurately "catch" the month which has the genuine High or Low. The other point to note here is that I am only focused in capturing local highs and lows and not major bull market highs and bear market lows. So you will see that the occurrences of Highs and Lows are quite frequent in this model.

Above are the charts for the local Highs and Lows made by Nifty since July 1990. First focus on the left chart titled "Highs"; the X axis is the interval in months between consecutive local highs in Nifty, the Y axis is frequency. So this chart can be interpreted as - there are 4 occurrences in the entire dataset when Nifty made consecutive highs at the interval of 2 months. For example if Nifty made a high on Aug 1995, it made another high on Oct 1995.

Coming to the charts we see that the maximum frequency  is at 3, but 4,5,6 months interval are also quite substantial. Above the chart I have pointed some other figures, which says Average is 4.88, Median 5 and weighted average of 3.72.

Similarly if you look at the chart titled "Lows", you see a peak at 4, though 2,3,5,6,7 all are having weightage. The Average is 4.9, Median 4 and weighted average 3.77.

The recent data says that Nifty made a Low in Jun 2011 and a High on Jul 2011. I need to dig this deeper, to make any sensible forecast, but I wanted to get this out so that I can get more inputs to work on this track.


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