Tuesday, June 30, 2009

Dot on … Update for 30 Jun 09


Last day of the month and it is one thing to be confused and it is another to be sitting on confusion. Let me clarify what I mean. I mean that we have 3 EMA and 15 EMA exactly the same – 4354.  Now this can mean two things – if the EMA crosses over then we go long and if it does not then we are supposed to add to the shorts already held with us. So seeing the things as they are – we will just wait for the other indications to give us direction or we will just wait for some more clarity to emerge. Yesterday the market’s high was where it was exactly projected to be – the middle of Bollinger bands. That figure was 4446 and the market high yesterday was 4440 – just six points short of it before it gave away most of its gains and ended at 4390. could this be the top of the second shoulder that I discussed yesterday? well it may be though I am sceptical. I do feel that a little bit more is what is there in store for us before we form the shoulder and decide on the direction. Daily 29 Jun 09All this is well – but everyone is eagerly waiting for the budget and the pull and pressure can be gauged by the fact that the premium on the Calls and puts have increased quite a bit. Normally what happens that the markets sees the direction of the trend and the premium towards the trend is more and less the other way – here we have the premium increased both ways – so you can actually feel the pulse of confusion.

As far as the global cues are concerned there is fair amount of good news flowing in – I am talking in terms of the market performance – except Asia – everyone was green. FTSE was up 1.25%, DAX up 2.27% and CAC up 2.04%. US opened flat – dipped down red and then went up to remain green and close at those levels only. DOW was up 1.08%, Nasdaq was up 0.32% and S&P was up 0.91%. Mind you all this was in a lack of market cues for US and Oil shot up by 3.4% to 71.49%. Ofcourse if it all green then we have to have a matching Asia opening and Nikkei has opened green – and is now at 1.98% up and Strait Times too is 1.56% in green.

Coming to the charts – like I said we have a situation where the 3 EMA and 15 EMA are same so I will wait for a crossover and chances are of a positive crossover. The volumes were a bit better than yesterday with 82% of the last 50 day average. ADX has turned bullish but the strength is less – very near to 20 – the signs of confusion here too. MACD remains defiantly bearish. RSI is bullish. And so is Slow Stochastic. TRIX – one of my favourite forward looking indicator is looking down unfortunately as of now.

The Pivot data goes on like this ---

R3 4528 against 4523
R2 4482
R1 4436
Pivot 4393 against 4333
S1 4347
S2 4304
S3 4258
Projected High Range 4414 to 4459
Projected Low Range 4419 to 4374
Fib Projected High 4463
Fib Projected Low 4325

Option Pain 29 Jun 09 As far as the options are concerned the Put Call ratio has almost come to 1 –see it for yourself.Put Call ratio 29 Jun 09

To prepare for the elections a large majority is with straddles and strangle in options. I feel otherwise – in toto for a straddle in nifty we are paying almost 400 points – we may not have such a swing and may not get the kind of gains we expect from the markets – so I am where I was – on the sidelines for more clarity. Best of luck to all of you for today’s trading.


Sunday, June 28, 2009

Update for 29 Jun 09…

The markets bounced back with vigour in the last trading session. Now we have a mega event that may no longer be mega in size but may dictate the future of our markets in time to come. Railways budget and the Budget per say. It will decide the line that the Indian Govt will take over the next year to come. Are we expecting too much from this run up and are we expecting to reach new highs? may be – isn’t it all happening too fast? I was having a chat with Capt Joetom in the evening and I agree with him – if the markets go up now in expectations of the budget – it is difficult that the budget expectations will be met… in the way desired and we can expect a correction. If however we do have a sign of stability here at or below these levels then there are bright chances that we will strike gold at new highs in the coming days.

As far as the Global cues are concerned, we were the best of the markets in terms of performance on Friday. In Asia Nikkei finished green and almost the highest for the day – 0.83%, Hang Seng up 1.78% and Strait Times up 0.67%. Europe did not have a particularly good day. They started green and ended the session red at the lowest levels for the day – mainly on the US cues. FTSE was down 0.27%, DAX down 0.5% and CAC down 1.05%. The US started red, went deeper red and then tried to recover ending not good – DOA down 0.4% and S&P down 0.15% and Nasdaq up in green 0.47%. How we see the session in the Aisa opening we will see. So overall the Global cues are not too good and Asia opening has to be seen in this context.

As far as the technicals are concerned there are two other things to consider before making a choice of trades… Firstly is the Head and shoulder pattern being made.


If this turns out to be true then we may see levels very near to the 4500 on nifty before a pullback. The second is that though the 3 EMA has not crossed above 15 EMA so far – it may do so in this coming week before the budget and may give a positional long signal. So I would remain cautious around this zone of confusion and will wait for a clear signal. Daily 26 Jun 09 Also if the shoulder gets completed and it turns out to be what I am thinking – then one can expect a sharp retracement from those levels also. I do not however see the markets running up to 5000 as many are speculating the markets to do. We are trying desprately to move away from the  bottom of the Bollinger Bands and the first target may be the middle of the bands at 4446. The 3 EMA is trailing below the 15 EMA – 3 EMA at 4318 and 15 EMA at 4349. The volumes were not particularly impressive – just 76% of the last 50 Day average. Here comes another shocker for the bears – ADX is bearish but chances are extremely bright that we will have a bullish indicator. MACD remains faithfully in the bear camp but shows signs of switching sides as the divergence is decreasing with every passing day. The Slow Stochastic is bullish and so is the RSI. So here is all the indicators I follow laid out in front of you. As of now – the bulls may be calling the shorts so bears beware.Put Call ratio 29 Jun 09

Now we come to the Pivot data…

R3 4523
R2 4473
R1 4424
Pivot 4333
S1 4284
S2 4193
S3 4144
Projected High Range 4379 to 4449
Projected Low Range 4317 to 4247
Fib Projected High 4421
Fib Projected Low 4204

The options data seems to be inconclusive but all the same see the options pain and the Put/Call ratio charts. The greatest volumes for the Jul calls is at 4500 levels and that for puts is at 4400 levels so let us see where we are off too.Options Pain 29 Apr 09


How Options Matter…

I was wondering for a long time that it is so easy to say as to why and how the options sway the markets – like it the call build up is more then the markets are less likely to go up and vice versa. Is it true? Is it sacrosanct? I started looking for the answers and when it came to the brass tracks of getting a precise answer there was so much that it took me time to comprehend. At the end I gave it a thought whether or what is the right one. In any case i am putting forward what little I learnt and will share it here. Only thing is – like I always say – I do intend to use this site for not only getting my ideas out of the head but also to learn myself. There are stalwarts in trading in general and in options in particular – and would be grateful if there is some contribution from all who read so that we learn more.

Okay the Question that I deal with today is “How does call and put build up matter'”. Well here I go from what I gather. In this theory it works with the premise – in the words of Humphrey Neill “The public is right during the trends but wrong at both the ends”. There is a lot to read in between the lines here.The Put/Call ratio (the ratio of the trading volume in puts to the trading volumes in calls) is an important sentiment indicator. As a contrarian , the belief is that when to many speculators are bullish (indicated by a low Put/Call ratio), the market is poised to fall or atleast consolidate within a bull trend. And just as this ‘wrong way’ crowd becomes exuberant at market tops, it feels gloomiest at the market lows. What is of special interest is that at the extreme readings in the Put/Call ratio these points this indicator becomes the most reliable. Just as high Put/Call ratio indicates excessive pessimism and thus signals the significant lows in the markets to contrarians, a very low put/call ratio is similarly a bearish omen to the contrarians. Now by identifying extremes in public opinion, Put/Call ratio should offer one of the most valuable tool to predict the market turning points.

Another point to the options that is often agreed upon by those who deal in options is that the up trends in the markets are generally gradual over a greater period of time and down trends are sudden and swift. Both these circumstances have to be dealt in a different time frame and in a different manner.

The second question to which I found and interesting answer was as to “Why are there points in Options referred to by experts as the strike prices that are significant?” Okay these are significant because of Delta hedging. Okay here goes the explanation – Often, there is a build-up of call open interest at key strike price that is significantly out-of-money on a stock or index. Those people who sell these calls run the risk that a rally in the underlying stock will risk the options sold. So they hedge these by buying shares in the stock. But of these far-out strike prices, call sellers have little incentive to hedge their risk (which costs money), as the small amount that these ‘low delta’ options will move relative to the movement in the underlying stock does not pose significant risk. However, as the stock or index starts moving toward the strike, the call sellers need to buy the stock or index in increasing quantities to hedge the risk and remain ‘Delta neutral”, as their negative delta increases due to the increasing possibility of these options moving into-the-money. Such a process of hedging more of the underlying as it moves closer to the money is known as Delta Hedging.

Now let us understand what happens when the strike is reached. At that point , call sellers will likely be hedged, and they will have plenty of incentive to sell the stock, index or future to keep the options they sold from finishing in-the-money. This often creates downward pressure on the stock or index. Thus, artificial buying on the way up is converted to increased selling pressure once the strike is reached. Consequently, heavy out-of-the-money call build-up can be bullish in short term, yet bearish in the longer term. Now comes the second part of this dilemma – if the strike with big call open interest is significantly penetrated due to continued heavy demand for the stock, the delta hedging process will result in further upside impetus as the call options sellers scramble to buy even more stock. This same principle applies to a large build-up of put open interest on a stock or index.

So now how do I play these places where such build-up takes place? Firstly be cautious: never assume in advance that an option strike is ‘impenetrable’. It’s suggested to wait for an odd day around these points and at close take positions with the winning side.

I hope that I have been able to present the above in as easy language as possible and will help people study the options data and use it well. Best of luck and I have a question – how do I identify extremes of the public opinions? I will be grateful if someone can point me out the answer.


Thursday, June 25, 2009

Will the market revive? Update for 25 Jun 09

The down trend that had started was showing signs of slowing – but now I would like to question – is it over and do we have a condition of getting back on track with markets recovering? Well the question is difficult but I would like to add that it would be reasonable to assume that the markets will go further up. Personally I would wait for three critical things to pass by before the dict is passed in favour of the bulls. The first being this expiry today, the second being the crossover of Lower EMA above the Higher EMA I track and lastly the budget that has the potential to topple the apple cart altogether. Other than this the mood at the moment seem fairly bullish as was demonstrated yesterday. sector-irc The advance decline was 7:2 and though the FIIs sold 792 Cr worth – the DIIs bought worth 728 Cr. There seemed to be participation by retail yesterday as well. There was earlier an impression among the other world economies that India would do well and now they have openly started endorsing it the latest is OECD that has revised forecast of India’s growth to 5.9? That does augur well for India provided the dozens of other subtle things remain in place. I refer to Oil, monsoons, recovery of the world economies etc. I am sure everyone would agree that all said and done the internal growth can only take us upto a limit, in these times of global dealings – ultimately the recovery of the world will matter. One thing that till now goes for the present run-up is that as of now the govt is in good hands and even if there is a populist angle to the budget – it will be well thought off and without the normal pull pushes of allies of the govt’s yesteryears.

As far as the global cues are concerned – the Europe opened low and then started climbing – not looking back and closing at almost the highest levels. FTSE was up 1.185, DAX up 2.74% and CAC up 2.18%.US opened flat – climbed up but gave up most of the gains around closing finally closing at Dow in red 0.28%, Nasdaq green1.55% and S&P green 0.65%. The mood in asia is good to say the least with the markets – Nikkei trading 1.86% green, Hang Seng 1.43% in green and Strait Times 0.77% in green.

As far as the charts are concerned. the 3 EMA is still trailing below the 15 EMA – the indicator that I follow but it is threatening to cross back above the 15 EMA and that may break above and cancel the down ward move of the markets. In any case the 15 EMA is as of now at 4360 and that is not too far away. The markets should close above the 4370 mark to make a difference. The volumes were average yesterday and as far as the indications are concerned – MACD is bearish. ADX is bearish and so is RSI as of now. There may be a chance – if we close in green that RSI gives a buy signal tomorrow. The Slow Stochastic are bullish and out of the overbought zone. I am sorry as I cannot insert the charts – internet is just not behaving and that is one of the reasons for the late update. Please bear me out and the best may be sitting on the sidelines ready to jump in rather being in and on the wrong side.

I am too late and the market has already opened so will skip the pivot levels and post – best of luck for today’s trading…


Wednesday, June 24, 2009

Update for 24 Jun 09…

I do get surprised how most of the comments by so called experts change when the tidings change of the markets. Take now for example. A few days back the market men were talking about being out of the woods and were preaching the ‘Buy on dips’ strategy, Daily 23 Jun 09just five odd bad days and already you start hearing how we are still in the woods and should take all the opportunity to ‘Sell on every rise’. It was amazing how the hype to buy was built up and suddenly the hype to sell is being created. I am sure the retail caught this trend on the upside too late and will not sell till the time he is well into a substantial loss. then he will think about “Agar I had entered at so and so level” Its one big sham to steal money. Anyway those who are in this game whether loosing or winning are here on their own so cannot blame anyone really. It is the question of who survives in this virtual jungle. 

Like I am going to say now and have been saying – there are events that can change the direction of our markets so till then just contend with a day up and day down. Budget is one. Frankly budget should have ideally lost its relevance in the true sense as the policy decision are taken through out the year. Why this has so much significance attached to it is – that the govt is now without pulls and pressures of past with it and whatever budget they present will show them in the true light as to what they really intend to do over the next five years. Frankly whatever they do – I personally feel the markets will tank – and my father feels that the markets will run up like crazy. Let me also say here that he has habit of getting the mood right generally. Now if that be so the opinion – then you can do two things – sit back and see the tamasha – or be hedged like in HEDGED. The second is the monsoons. They seem to be playing havoc with our sentiments – started by being predicted that they will be good and normal to deficient and late. We might feel comfortable sitting in an ac and getting things to order –but majority of our country is still out there in the field trying hard to feed us the lucky. The fact remains that they do dictate where we go in general – so it is important that the farmer has it the right way. other than this the news trickling abroad will play its charm.

The global sentiment as of now is confused to say the least. One market is a point up then the other is a point down. The news coming out is not particularly good and in any case I feel it has been adequately discounted already. Take it this way the good news in last few months has been adequately discounted and this recession is not going anywhere. to reach the kind of economic frenzy we saw in the last decade - will take a long long time. Europe started red – went green and ended confused. FTSE was 0.1% red, DAX 0.29% green and CAC 0.21% red. US started green and ended as confused as Europe. Dow was down 0.19%, Nasdaq down 0.07% and S&P green 0.23%. Asia opened green – Nikkei has since dived down now only 0.01% green and Strait Times holding on at 0.62% green.

As far as the charts are concerned – there is not good news there. We have started trailing the bottom of the Bollinger bands, Volumes are average, ADX is bearish, MACD is bearish, TRIX is looking down and RSI is bearish. Only hope for the short term is that Slow Stochastic is oversold and giving a bullish signal.

As far as the Pivot data is concerned….

R3 4391
R2 4343
R1 4295
Pivot 4219
S1 4171
S2 4095
S3 4047
Projected High Range 4257 to 4319
Projected Low Range 4215 to 4153
Fib Projected High 4300
Fib Projected Low 4109

Notice two things in the option pain – calls remain more than the puts and reversal of positions in put call ratio next month. If the puts remain more for next month then we may have some stabilisation of the downturn otherwise there is a long way to go on the downside.

Ideally I will not be in futures of any kind – will hold strangle/straddle till the time budget is out.

Best of luck everyone…


Important follow through on trading strategy… Please read….

A couple of days back I had written about a strategy regarding trading on 3 and 15 EMA crossovers on 5 min charts. This was posted on my blog  and you can reach it by clicking (Click Me) and on Stockezy that can be reached by (Click Me). I am sorry but what happened was that the electricity was coming and going every five minutes so when I finally had the presentation in some shape I got disgusted and published it.

Like I had written in the beginning of the strategy – everything has a plus and a negative – so this too has some negatives draped along with it: – I will present the few that I have noticed and will be grateful if – anyone who notices something more should add on.

  • The fact remains that the 15 EMA on five minutes candle starts showing around 1115 or so. So that would imply that there will not be any trade till then. Okay here is a work around. Firstly everyone says that first 30 min are for the amateurs – yes it does swing but I too personally feel that it is not worth entering for the first 30 min in the market as there is too much of Topsy Truvy as many a times irrelevant things make the markets sway. Also it is not so that if you do not plot a 15 EMA you will not be able to know the trend – so I compensate with starting with a 8 EMA period and place trades accordingly and then every 10 min change the EMA line by two so that finally I come to the 15 EMA period.
  • Sometimes the whiplashes are too much and strong. Okay this is an important part. Two things that you must do.
    • Firstly, in such a situation do not enter trades – eventually such tiding die down in a few hours time.
    • Secondly, start by keeping the stop loss further out.
    • Thirdly, as you would expect a violent breakout in one direction – keep an increased distance between the stop loss and the trigger price. Like in Nifty on a normal day 2 point is good enough for you to trade a direction. On other days 3 points serve the purpose and on extremely violent days – like the coming budget day a 5 or even a 10 point should be there since the direction can change with a force not seen usually. Saw what happened on the election result day?

Finally I would end it be saying – there are days when things just do not work out – sit aside and take a break. In any case on a normal day with this strategy you get generally only two good trades and one odd whiplash. but winning is generally two to three time the loosing.

Please do comment.


Monday, June 22, 2009

Now What? … Update for 21 Jun 09…

We have had a so called meaningful correction so as to say… But the doubts as always float in the mind as to now what. There are a lot of circumstantial


pulls and pressures that are building up. Firstly this run-up was perhaps not to reach such heights. Then there is this budget, news about the Air India asking the top employees to forego the salary, Paying the rest late, Oil prices and ofcourse the run up that we have seen forDaily 22 Jun 09 last few months now.


Infact globally the uptrend seems to have taken a breather and inspite of us being the markets that are out to outperform others – still we have to remain vary. As far as the global cues are concerned – Europe closed in green with FTSE up 1.52%, Dax up 0.04% and CAC up 0.85%. US started the day well but by mid day had given up most of the gains to end flat. Dow was down 0.19% and S&P was up 0.31%. Nasdaq out performed both the exchanges and closed 1.09% in green. Today the markets have opened confused here in Asia too. Nikkie opened flat, went red , climbed green and is now re 0.2% down. Strait Times opened green, turned red and now flat at +0.2%. So they are yet to make up their minds as to where they have to go.

As far as our charts are concerned the markets have turned bearish with the 3 EMA trailing below the 15 EMA. To reverse the trend the markets should close minimum above the 4409 levels and then confirm it with another uptick. We are around the lower end of the Bollinger Band. The volumes were nowhere as good as desired and you can see the FIIs participation in the markets by looking at the data above. ADX is bearish and the down trend seems to be gathering some strength. MACD is bearish and the Slow Stochastic have reached the bottom of the limits with both %K and %D lines in oversold territory. RSI is at 51, crossing from below – but then this may turn out to be an aberration and may continue its journey downward with an odd stop. TRIX is looking down and that is it.

So all in all like I said – unless the charts reverse the downtick will continue and one odd market up tick as of now should be taken as an opportunity to get out of the stock positions to buy lower. Let us see the supports and resistance levels now…

R3 4446 against 4702 yesterday
R2 4401
R1 4357
Pivot 4281 against 4401 yesterday
S1 4237
S2 4161
S3 4117 against 4101 yesterday
Projected High Range 4319 to 4379
Projected Low Range 4272 to 4212
Fib Projected High 4358
Fib Projected Low 4173

Option pain 19 Jun 09 The Options data is as you see – look at the call build up – there is no way we are going up with this call put ratio. I will do a write up tomorrow on how Put Call ratio dictate the markets.

Put call ratio 19 Jun 09 Best of luck to everyone today – another interesting day in the markets.


Sunday, June 21, 2009

The game of buying and selling Stock Futures … The extra bit… (for day trades)

After you read every book on technicals – you do get impressed on the wonderful strategies that line the pages. When you try most of them you are generally where you started your journey from. At the end of the day you realise that the strategy does not work as it probably should. Then – atleast as far as I am concerned I try to look back where I went wrong. There are things that have struck to my mind as to why the strategy did not work – that is whenever it did not work…

    • Firstly, I over relied on a system that is not perfect when I started. Technicals have to be taken as a whole and overreliance on one of them creates unwarranted trades.
    • When I start with a strategy I get impressed seeing the strengths and do not go into the weakness that strategy has or the circumstances under which it shows weakness. To elaborate it – some strategy work when the markets are trending – others work when the markets are non trending. So you cannot apply same template to different conditions.
    • We fail to see the important landmarks that are around the corner and fail to see the impact of those events correctly. The impact is sometimes not as we think it to be.

I am spending time to try and understand the markets and the functions. It is interesting, intriguing and mystifying all at the same time - to say the least bit but then there are realms of investing that we as retail investors try not to explore. I will try to put forward a proposal in front of you today and try to salivate your taste buds for higher forms of investing. Like always – there are some presumptions and assumptions that we are to be made before I present the strategy to you. What I will be proposing is – that you are a typical investor who is afraid to take a step into the future and options because of any reason that justifies to YOU. So let me start out with my assumptions.

Day for 315 trades

  • You so invest in stock but are afraid of futures and options.
  • You do have a sort of methodology for studying technicals – or any other thing – may be even astrology that will help you select the time to buy and time to sell the stock.
  • I next hope that when you buy a stock you are assuming the stock to trend up and when you dump it – you are not bullish about the stock and expect it to go down.
  • You understand mathematics (Ha! this one is to finger some people I know).
  • The stock that you plan/intend to buy has actively traded futures (this is one of the difficult part at the moment in India, the stocks are a handful) What happens when the futures are not liquid enough – the jump suddenly can trigger your stoploss but the squareoff does not happen as the price variation is too great.
  • You have the capacity to trade in lots (The SEBI dictated lot of the stock).
  • you have an exit strategy from the stock if it hits your defined stop loss.

Now what I do is to setup and prepare for the trade. That preparation includes the following:

  • Decide upon the trend for the day.
  • The major news expected.
  • Relative performance on the previous days to include the ATR.
  • Fire up the Live chart of that stock and set it to candles – 5 min, EMA 3 and EMA 15.

After the set up is complete wait for the markets to start. Take positions in the direction of the lower EMA crossover. That is to say if 3 EMA crosses below the 15 EMA take it as sell and hold the sold position. After the trade is confirmed – I generally immediately set the stop loss above / below the 15 EMA. After the trade goes on my favour I trail stop loss initially along the 15 EMA and as the gap widens I move the stoploss below / above 15 EMA and also widen the gap between the trigger and stoploss so that in event of an unfortunate event of sudden drop or runaway of the market it helps. I know a lot of traders who also take the help of other indications to trail the stoploss – that could be Stochastics, MACD, RSI or whatever – well that remains a personal choice. After all this there has to be a aim – and that aim – can be how many points you will quit after. Once again this is a personal choice and I personally feel uncomfortable thereafter – made my bit for the day and carry forward no headaches.

If you have understood the above then it is good if not now let me explain with some true life scenario…

I will do so showing the performance on nifty… and though I wanted to show my Indiabulls charts I think you will have to do with a chart from icharts. Please bear with me.

Explanation 315 Assisted Day Trades


Thursday, June 18, 2009

Update for 18 Jun 09…

So the inevitable that was being brushed under the carpet for so long has happened. The selling pressure just outweighed the buying – which ofcourse I hardly believe was there to begin with. And the action has been repeated in most of the world markets – a huge theatre for the people playing the GOD men. Had this move come a couple of weeks earlier – it would have been perhaps seen in an absolute different light – could and would have been taken as a healthy correction. The markets could have then recovered, composed themselves quickly and marched ahead with vigour. Unfortunately it has come at a time and with the ferocity that might now indicate or terminate the run up that we have been seeing till now. The gravity – for whatever it was worth was hardly realised by the Asian markets and they closed nominally down and then the worst came. Europe that tried to go green suddenly found it hard to breathe finally ending – FTSE down 1.16%, DAX down 1.86% and CAC down 1.64%. Daily 17 Jun 09Though the US did open with a negative not – it tried and did go on to the green only to give up most of the gains eventually and close red except for Nasdaq. The banks did most of the damage so as to say. The US closed – Dow down 0.09%, Nasdaq up 0.66% and S&P down 0.14%. In Asia just Nikkei has opened that is already trading 1.56% down.

On the charts the much awaited event that happens once a while has happened today. For those who follow 315 – the 3EMA has moved below the 15 EMA and gives a sell signal – so ideally one should be in a positional short now. At the most today’s candle can be seen – but chances are bright that the markets will continue in this direction only and do a budget rally – so the bears should ideally dance for the next coming week too. We are past the middle of the Bollinger bands to the lower side. Like I already said the 3 EMA has crossed down below the 15 EMA and gave a sell – to be confirmed with a candle today. Volumes were one tick below the last 50 day average. Advance decline ratio for Nifty was 0.177 – grossly in favour of the bears. ADX has turned bearish and the ADX line will show strength in coming few days – if it turns upwards and looks up. Put call ratio 17 JunMACD is bearish like past so many days and the divergence has increased. RSI is at 53 and those who saw my “trading with RSI” will notice that on of the sell signals generated by RSI is when it crosses below the 50 points. So if we have a bad day then RSI too would generate the second sell signal. Slow stochastic is Bearish but still nowhere near over sold so we do have a run down left (so as to say…). 

Let us see the Pivot data now: -

R3 4702 against 4669 yesterday
R2 4586
R1 4471
Pivot 4401 against 4468 yesterday
S1 4286
S2 4216
S3 4101 against 4303 yesterday
Projected High Range 4436 to 4529
Projected Low Range 4505 to 4412
Fib Projected High 4567
Fib Projected Low 4281

If you notice the pivot is down 67 points and also the range has widened. The Fib projected low too has gone to 4281 – below the 4300 level. Option pain 17 Jun 09

See the Option Pain and how the Put Call ratio has over a day changed in favour of calls. IF and IF there is a recovery that would be quite a painful type. Best of luck to everyone for today’s trades.


Wednesday, June 17, 2009

Update for 17 Jun 09

The roles of the FIIs and DIIs seem to have reversed. And the FIIs sold worth 728.51 Cr and the DIIs bought 145 Cr worth. I am sure that that with this alone there was little reason why the markets ran up whatever that was worth. If not this then the next thing that comes to the mind is that the retail too joined in purchases and that held the markets to the levels they closed yesterday.Daily 16 Jun 09 The entire global markets had had a bad day a day before and Asia too took cues and was in red. Perhaps our reasoning was that after such a bad day for the entire set of markets the Europe will open green and then all will return to normal – business as usual. Well that may have been a fair presumption but Europe after opening flattish green went on to climb higher only to fall flat on its nose after the US showed no enthusiasm. Infact the plans of our market operators also seem to be thrown to the winds with the US markets drifting lower.

As far as the global cues were concerned the Asian markets yesterday were down red with Nikkei down 2.86%, Hang Seng down 1.8% and Strait Times down 1.23%. As I told some time back the Europe had opened flattish with green bias and went on to climb higher by the mid session – however at closing it once again turned flat with FTSE down 0.06%, Dax up 0.02% and CAC down by 0.17%. US too opened flat because of the mixed data on production and housing the markets dropped signalling end of the dream run that we have been having for some time now. Dow was down 1.25%, Nasdaq was down 1.11% and S&P was down 1.27%.

On the charts the candle was a hammer though the typical down trend had not set in so far. All the same it is a reversal signal from a down trend. With the appearance of the hammer a confirmatory signal the next day is almost compulsory.  We are near the middle of the Bollinger bands and also would have 3 EMA would have definitely crossed the 15 EMA lower had the candle been black. Volumes were just a bit better than a day before. ADX is bearish and the –DI had crossed above the +DI inspite of the white candle. MACD continues to show a negative divergence with divergence increasing – remains to be bearish. RSI tries to look up – and will see it today during the day. TRIX is looking down and shows bear times ahead of us. Slow Stochastic too are bearish. If we take a fall today then take yesterday’s climb as and aberration of misplaced enthusiasm of retail.

The Pivot data now…

R3 4669 against 4733 yesterday
R2 4618
R1 4567
Pivot 4468 against 4518 yesterday
S1 4435
S2 4354
S3 4303 against 4303 yesterday
Projected High Range 4527 to 4593
Projected Low Range 4481 to 4415
Fib Projected High 4572
Fib Projected Low 4369Put call ratio 16 Jun 09Option pain 16 Jun 09


See the Put call ratio that has almost equalised and the Option pain charts.


Tuesday, June 16, 2009

Update for 16 Jun 09…

The inevitable happened – after weeks and weeks of up move without a meaningful pause the markets finally all over the world signalled a breather on the rally that has been going on for so long. Now what would be of interest to everyone is the depth of the correction and whether it has the capability to push down the markets to the previous lows. Well I am sure that anyone at this point would ideally tell the direction meaningfully as a second guess and nothing else. Daily 15 Jun 09What I mean is that there are just too many variables at the moment to say for certain – to which levels the markets are going to go in this correction. On one hand the indicators I follow have still not generated a positional shorts to be held – but then It is as per the indicators that I follow. On the other hand the correction has been the world over with all indices falling more than 2% without exception, and it seems to be the end of the line as far as the good news is concerned. Apart from this there are supports on the lower side that may play out and resistances on the march forward of the indices. So there are a multitude of factors that are going to support any new theory that may crop up giving us the direction. The reliance had played out exactly as predicted, as expected and written yesterday – it fell and fell really hard.

The global cues are as I just pointed out – bleak. Asia was down to start with and so was Europe. Europe started weak and then as the day progressed and came nearer to US opening the markets had another bout of selling – finally breaking the markets and ending at the days lowest levels. FTSE was down 2.61%, DAX down 3.54% and CAC down 3.2%. US too opened red and then went on to touch the lows around the mid session and then recovered a wee bit to close – Dow down 2.13%, Nasdaq down 2.28% and S&P down 2.38%. As I write now – only Nikkei has opened and – it has opened 1.25% in red – no reason to believe as of now that the markets are likely to show some recovery after yesterday’s fall.

On the charts the black candle with the 3 EMA plotted has touched the 15 EMA and the crossover is of 3 EMA below 15 is likely – generating a positional sell signal for all those who are the fans of 315 trading strategy. The volumes were once again progressively lower and the Bollinger Bands have stopped constricting any further. On the ADX –DI line is showing all the signs of crossing above the +DI line once again signalling to remain short. MACD is bearish with the negative divergence increasing. RSI is bearish and so is the Slow Stochastic. The TRIX too is looking down. So after a fairly long time all the signals are negative so as to say. I am looking forward to around the 4350 levels – whether they hold or give way and then see what happens then. In any case below this the levels that I see is 4050…

The Pivot data now…

R3 4733 against 4840 yesterday
R2 4650
R1 4567
Pivot 4518 against 4614 yesterday
S1 4435
S2 4386
S3 4303 against 4408 yesterday
Projected High Range 4542 to 4608
Projected Low Range 4593 to 4527
Fib Projected High 4636
Fib Projected Low 4433

I will end this session now and wait for another day before posting the Option data for Nifty. Best of luck to everyone.


Sunday, June 14, 2009

Update for 15 Jun 09…

Okay – let me start this like this – before I start with the article proper let me tell you a story that I came across on the internet by a Steve Austin about the oil prices. I am telling you this as I believe that at a point of time sooner rather than later we will get affected by the oil price and at the moment it does not seem to be a pleasant site.

I have pasted the article from a website and you can reach the site by Clicking Me. I am leaving this link for two reasons – firstly all the articles on the site are eye openers and secondly the credit is his (Steve Austin) and his alone. I quote

“It took only 5 months for the price of oil to plummet from $150 to under $40 in the second part of the year. Meanwhile oil consumption did not even decrease 10%, so what is the real cause of this collapse you may ask?
Hedge funds. Let me explain.
During the first part of 2008, Western economies were already slowing down noticeably and hedge funds gradually pulled trillions of dollars out of the market and parked them in energy ETFs. At the time Chindia's insatiable thirst for oil and the "decoupling" of east/west economies had many believe commodities were a "sure thing", a sound enough tangible insurance to protect overinflated assets scavenged from made-up bubbles. On top of that, by using leverage, profits were multiplied as oil went up, not a bad deal in a recession.
But when the banking industry collapsed, hedge funds had to raise cash by "deleveraging", liquidating their leveraged energy ETF positions sending the price of oil tumbling. Anecdotally shorting of banking ETFs was suspended by the US Securities Commission during that time but not shorting of energy prices, and the leverage mania soon found an escape route in utrashort oil ETFs, compounding the speed of this downward spiral. By December 2008 the oil price had collapsed 75% and frankly, who would complain about cheap gas these days?
As we enter 2009 the oil landscape has reversed dramatically from a year ago. The price of oil is lower than production costs and new exploration projects are being cancelled. China flush with cash is currently buying all the oil it can get its hands on to pump into its strategic reserves. Once arrogant OPEC countries are willing to sell oil at any price to fund government programs and prevent political instability.
One constant however is the depletion of major oil fields, worse than predicted at 9.1% year over year as we close 2008. It's a matter of when not if the economy recovers and when it does, expect a strong bounce back in the price of oil.”


After we see it in the context of the fact that there were some sort of news floating that Govt wants to deregulate the oil pricing and leave it in the markets forces hands till the price of the oil internationally is below 75 Dollars a barrel seems to be in doldrums as the price has already reached the 72 $ + mark in last few days. The govt is likely to have two options – keep the deregulation of oil prices on back foot – and perhaps loose some credibility of an area of thrust and secondly deregulate the prices and upset the inflation – the govt has been careful to ensure does not go out of its hands. classical case of ravine on one side and well on the other. It will be interesting to see how the govt moves about handling this.

Apart from this the Reliance-RNRL case coming up on Monday, decision of some companies not to buy gas from Reliance and the upcoming budget will play a major role in the days to come.Daily 12 Jun 09

As far as the global cues are concerned – Asia was okay – not considering our markets which are onto 13 weeks of winning streak. Nikkei was 1.55% green – the best performing, Hang Seng was green too at 0.52% up and Strait Times was red at 0.20% down. Europe started the day flat – tried to go green but that became the highest for the day – ending down in red – FTSE down 0.45%, Dax down 0.74% and CAC down 0.26%. The US markets closed mixed with the DOW up 0.32%, Nasdaq down 0.19% and S&P up 0.14%. All in all the markets the world over seems to have run out of the steam they were in till last week.

On the candle sticks there was the second red candle and the 4690 level is presenting a good resistance to the markets that I have a feeling will remain in place for some time to come – till the time the markets corrects and resume its upward journey again. The Bollinger Bands have constricted and are narrowing down quite fast. 3 EMA remains above 15 EMA. Volumes were no great shakes. Though the ADX is still bullish – the +DI line looks down and so does the ADX line (Black) that is not a good sign as the ADX had bounced back from just above 20 level and now seems to be turning back before showing the strength by crossing 40 level. The –DI on the other hand seems to start moving up again. MACD is bearish with increasing negative divergence. RSI has just left the overbought position behind and is looking bearish. Slow stochastic may be the only bullish signal at the moment but once again likely to enter the overbought position soon. The TRIX has also started looking down. For all those who have faith in technicals – it is time to sit on cash once again and wait for opportune time to strike.

Coming on to the pivot data now…

R3 4840
R2 4741
R1 4662
Pivot 4614
S1 4535
S2 4487
S3 4408
Projected High Range 4638 to 4701
Projected Low Range 4684 to 4621
Fib Projected High 4727
Fib Projected Low 4531

I will not post the usual option pain and Put call ratio for Nifty but will do so for Reliance. All those who are experts looking out this type of data – though the reliance was one of the only stalwart in last trading session – the question is – Is reliance in big time trouble? Option Pain Relaince 12 Jun 09 Put Call ratio reliance 12 Jun 09

I will end my write up here and will wish you all luck for the coming few days. If you do sit on some cash then wait for some 10-15% correction before coming back in.


Saturday, June 13, 2009

Leave over...

Sob! Sob! --- I will be back on my blog full time from day after onwards as my leave has finished. See you on Sunday afternooon


Sunday, June 7, 2009

Update for 08 Jun 09

It had been an unexpected day yesterday (like a long time now) when markets – expected to correct somewhat. What the markets are doing is that it is looking around for direction that is not available as of now. Take is this way that the markets want to correct as most of the indicators are overbought – but cannot do so as the environment is bullish. This makes us to be basically unsure with a bullish undertone. There is a question that is haunting my mind and am sure a lot of minds like mine – where are we off to now?


What is driving Our markets can be a good question at this stage. Is it only the FII money pouring in or we have the retail lining up for a mad rush? We can see from this table that I have inserted about the FII/DII data that FIIs are buying and DIIs are net sellers. But also see that a positive volumes of 350 Cr has actually moved the markets (Nifty) up by just 14 odd points on closing. Does it mean that the FIIs are moving on to the second tier of stocks? FIIs who are continuing to buy on our bourses or the DIIs who are modestly selling almost every day.

The global cues cannot be better than the one we are having at the moment. Asia closed up – Nikkei up 1.02%, Hang Seng  0.96% in green and Strait Times up 1.40% in green. The Europe opened green and then traded in a fairly narrow band. however just after mid session the European markets jumped up – was unable to sustain and closed somewhat off their highs. FTSE closed 1.18% in green, DAX up 0.24% and CAC up 0.82%. The barometer of the world economy – US opened in green and went on to touch the flat line – spiked up and then closed flat. DOW up 0.15%, Nasdaq down 0.03% and S&P down 0.25%. We will have to wait a while for the markets to open.

The markets have continued on a rally for an unstoppable 13th straight week and the sentiments more than anything else have paved this way. The economic data that has been released from US, Germany, UK, Japan and China indicates towards a gradual recovery – more than recovery perhaps is the indication that the downside has bottomed. All participants are now worried about the direction of  the markets and many are not fully convinced that there is a further upside to this levels. On the other hand the downside has on the previous occasions also been limited when the markets wanted to correct due to the buying that prevents any sharp fall. There is important global economic data that is due and that might show direction in the coming week.

Daily 05 Jun 09The Indian markets have remained volatile and has managed to close around the 4600 mark. Nifty looks bearish only if we take into consideration that all indicators are indicating profit booking. 4640 looks as a resistance for nifty on the upside and supports of 4350 and 4110 seems to be strong. Two stocks that are overbought are DLF and L&T and may come under significant selling pressure in the coming weeks. Some more factors that may affect the markets in the coming weeks are:

  • Unemployment in Europe continues rising.
  • US home sales seem to be stabilising as the mortgage interest rates are at its lowest.
  • Euro GDP has contracted just 2.5% for the fourth consecutive quarter (improvement over the contraction of 4.8% in first quarter of 2008)
  • UPA is to shortly unveil its disinvestment agenda with a target of 10,000 Cr for a 12 month period.
  • In order to check the dominance of Gail and Reliance in the gas transmission segment the govt has planned to take up all the main gas pipeline projects to ensure their speedy implementation.
  • Our growth rate has come down to 5.8% for the fourth quarter of 2008-09 and 6.7% for the entire year – much better than expected.

The gold has remained positive but stable but the crude has risen more than 6%. This will eventually put pressure on the govt and may result in some bad news either way. What I mean is that if the prices are unchanged then the investors following the markets may be susceptible and if they do change then the change is too close to the election that have gone buy and might be easy to mudsling on the govt.

On the charts the candle once again was a small white one. Maybe it is showing more confusion than anything else. We are on the upper half of the Bollinger Bands but not the top. 3 EMA and the 15 EMA are as of now running parallel to each other. Both lines are on their way up so a crossover – unless there is a strong negative move is not likely to happen. Volumes have remained to be good. The ADX line has turned from near the 20 mark to look up now at 38.18. The green line that had briefly crossed below the red line is seeming confident. MACD divergence is very small – but positive (bullish). Slow Stochastics are overbought and bearish at the moment. RSI continues to be overbought at 77.05. All in all – the bullish signals overweigh but there are strong signals of markets being overbought.

I think that Pivot data should be presented now.

R3 4711
R2 4669
R1 4627
Pivot 4594
S1 4552
S2 4519
S3 4477
Projected High Range 4611 to 4648
Projected Low Range 4623 to 4586

Fib Projected high 4656

Fib Projected low 4540

And finally the option pain and Put Call ratio…

option pain 04 jun 09

Put Call ratio 05 Jun 09


Monday, June 1, 2009

Of Bulls and Bears… Update for 01 Jun 09

The market is the king and no one or nothing else matters. Infact the markets have remained defiant of following any indicators at all. There is a reason for that and reason in justifiably good. We have had the GDP above the expected figures. The results of Sail, L&T and M&M were better than expected – the ministers generally shouted “Will Perform” in unison and FIIs continue with their buying spree. Then what the hell is wrong with me to be a pessimist? There is a talk of de-regulation of the govt pricing regime for Oil, There will be some anti dumping measures in steel and infrastructure will get a boost.

imageWell I would put it this way Firstly, the news – or the good part of it is now over – there are no more surprises or statements that will come out for some time to come. Oil deregulation part is good but had a look at the oil – inching above the 66$ per barrel mark? Steel taxes on cheap imports is good but realise that it will be expensive for the consumer who is already under pressure from spiked up real estate? Finally see the figures of FII and DII trading data? Net value is positive but do not ignore the sell value – it has been 5264.8 Cr. Once again the money flow from the FIIs is of the proportion that them going out will upset our cart. These are the reasons along with the technicals that make me say that – no down trend perhaps but a correction of 10-15% should be around the corner.

On the global cues front Asia closed with Nikkei up thee quarters of a percent, Hang Seng was up was up was up 1.6% and Strait Times were up 1.55%. Though the European markets did end positive – they closed around the lower levels. FTSE was up 0.69%, DAX up 0.16% and CAC up 0.43%. US traded the entire day along the flat line but ended positive – climbing at the last moment to end Dow green 1.15%, Nasdaq up 1.29% and S&P up 1.36%. In asia the market is trading green. Nikkei started red but quickly climbed up in green and is now at 0.79%, hang Seng is up 2.23% and Strait Times up 1.89%. Daily 29 May 09

As far as the charts are concerned – they remain bullish and overbought. From the beginning – let us see. The candles are bullish and nearing the upper range of the Bollinger bands. All lower EMAs are above the Larger figures so the uptrend continues. The volumes are good – 148% of the last 50 Day average and that is good. On ADX the +DI is above the –DI so it is bullish. The ADX (14) is at 25 and any drop lower will make it go into a range bound market. MACD is bullish without any iota of a doubt. Slow Stochastic is Bullish and so is RSI – the RSI is in the overbought territory. So most of the indicators do remain firmly bullish. It would be interesting to see the day unfold today. It should ideally open positive but am not as sure about the closing.

Put call ratio 29 May 09option pain 29 May 09 I Think that it is worth seeing Options data also check out the graphs…

And before I pen off the Pivot levels…

R3 4636
R2 4573
R1 4510
Pivot 4425
S1 4362
S2 4277
S3 4214
Projected High Range 4468 to 4542
Projected Low Range 4434 to 4360

Fib Projected high 4528

Fib Projected low 4299

I would wish everyone luck and may you all make money.


A lesson in Trading ADX…

Today I'm going to discuss how we can take help of ADX to trade. Firstly let us understand what ADX means and what it indicates. This indicator has been created by Welles Wilder and he had created this to measure the actual strength of the market whether bullish or bearish.  I will not go into the calculations as to how ADX is calculated and plotted and unnecessary complicated our life. Well ADX is not an oscillator in the real sense. It does not move about mean line like perhaps the slow stochastic and MACD or RSI. It is generally plotted as three lines. The first one being black and that indicates the strength of the move. For example if the market is trending up and this black line is also going up it indicates that the uptrend is strong. I'll come to exact facts and figures a little later. ADX 1

Apart form this there are two additional lines the +DI and the –DI. The +DI lines is also called the Positive Directional Index and the –DI lines is also called the Negative directional index line. Also the +DI is generally green in colour and the –DI line is generally red in colour. If the Black or the ADX indicates the strength or weakness then the +DI and –DI indicate the sellers having the upper hand or the buyers having the upper hand or vice versa. Or let me put it this way

  • The +DI line represents how strong or weak the uptrend in the market is.
  • The –DI line represents how strong or weak the downtrend in the market is.
  • As the ADX (Black Line) is comprised of both the +DI and –DI lines, it does not indicate whether the trend is up or down, but simply the strength of the overall trend of the market.

Before I move forward I would once again repeat that as explained above the ADX line is non directional, it does not tell you whether the market is in an uptrend or down trend – but as to how strong or weak the trend in the stock or index you are analysing is. If you have understood this part then also know that generally when the ADX line is above 40 and rising – this is indicative of a strong trend and if ADX line is below 20 and falling this is indicative of a ranging market. These figures are for reference only and some people tend to use the 25 and 35 figures for the range bound market and trending market respectively. So I suggest you pick up default values and live with them.

So far so good? Now we will try to see how it can be traded. The ADX can be traded in three ways. Pardon my saying that I might like to put it this way that I will not try to trade ADX in all three way but in first scenario I will trade it and in the other two scenarios I will trade a trend or a non trend for that matter.

  • Firstly, and most importantly we trade the +DI and / –DI crossovers. Let me put it more simply. ADX 2If we have the +DI (the green line) cross over above the –DI (the red line) then I buy. If the –DI line crosses over the +DI line then I sell. I also see this with respect to the ADX line – that is to say if during these crossovers the ADX (the black line) is below the 20 mark then the market is not trending and this could be a misinterpretation of the signal.ICICI Bank ADX how ever if in the same circumstances the ADX line was above 20 and climbing – then it could indicate that you have caught the trend correctly and you may be able to ride it well.
  • Like I said before the second and the third are trading the trend or lack of trend. So let us see. If there is a lack of trend then we would like to see the the range of the markets in which they are caught up. In this case it is best that we take help of some other indicator. Bollinger Bands are good indicators when the markets are not trending. ADX Range bound 2 So generally the range of the market would be between the  bands – so it may be safe to sell naked options – calls when the markets are around the top of the band and sell puts when around the bottom of the Bollinger bands. The stop loss can be a point just outside the band with the ADX crossing above – say 30! Actually this point has to chosen by you and you alone. My figures are a suggestions only.
  • The third is Trading weakness in trend. It is different from a range bound market. Weakness in trend may be taken on an anticipation of trend reversal. So partly buying when the down trend is weakening followed by entering with conviction when the +DI crossover above –DI may be a good strategy.

Along with this we can use the ADX for entry and exit also. Let us assume that you entered the stock when the +DI crossed above the –DI and the trend is gaining strength (ADX moving above 20/25) we would have entered. Now if +DI crosses and goes above the ADX line reinforces the decision taken. ADX moving below 40 may mean a pullback from the trend.

I did not have too much time as my commitments during this leave are keeping me busy so I have used only a few charts for examples – so please pardon me for that.

Also it is very important to remember that ADX or for that any technical indicator must be used in conjunction with some other indicator to reinforce and should not be made use of singularly to take decisions. Please feel free to leave comments – will try to answer if there are queries.