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. What 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.

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.

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?

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.

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

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.

The 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…

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.

Well 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%.

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.

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.

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. If 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. 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. 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.