Vix-Spx Update

Been 4 days since my last post on the subject and what has the SPX done- down 3 points. Sideways movement it certainly is.

Here is the updated VIX chart :


Still above my green trendline. I will stick to my prognosis for a side-ways to an up market for the near term.


Since this blog is all about inter-market relationships, I thought that it would be prudent to support my view with a chart of the US Dollar.

As you know that USD and Stocks tend to move in opposite directions on the graph, I put up this chart of the co-relation :



And here are the trendlines I have been following on the USD index:




Ever since the descending TL gave way in Dec, USD has been moving upwards, but confined within the two TL's you see in the pic.

The lower TL will have to give way for the upmove in stocks to continue.

Vix and the Spx-2

My last post here on this subject of the Vix called for a bottom in the Vix and a subsequent top in the index at 1146-1150 levels, levels which we have not seen since.

Let's look at where the Vix is today after that post.Here is a YTD chart of the VIX:



As you can see we are reaching complacency levels and it is the time to be careful in your stock selection.

Another look at the 10 year chart:

Complacency yes...but still not quite there

The McCellan is showing that the index has some more to go on the downside and we are not below my green line again.

So we will be here on the index for some more time...maybe flat to up but no major downside anytime soon.

Correction over?

Sometime on Friday, when world markets were scared becuase of the Fed discount rate hike, I had mentioned on this blog that it was a non-event, the panic was people chickening out and it presented an opportunity for traders to 'buy the dip'.

Well we rallied from those 4820 levels to 4900 today, about 80 points in 1 trading session.

Looking at the bigger picture, where are we going to go now?

From 5300 levels we came down to 4670 levels, and about a 12 % correction which is healthy for a secular bull market.Looking at the liquidity present in the system, I do not think that we will test 4670 levels again.

The markets have risen form March 2009 with so much liquidity and there is so much more in the system that I would be scared to stand in front of this rampaging bull if I were a bear.

Fed Rate hike? What will happen?

The answer is nothing.

Markets are spooked globally as the Fed suddenly announced a 25 basis point hike in the discount rate. Futures around the world collapsed on the news and our very own Nifty opened about 1.2 % down. So is this the end of the road for this rally?

Let's understand what the Fed has done. Literally nothing to warrant such a reaction in stock prices. The discount rate is the rate at which banks borrow from the Fed. Post stimulus, very few banks borrowed and infact many have returned the money back. Very few banks are likely to borrow from the Fed now, hence the rate hike is insignificant.Infact they have been talking about this hike for the past several weeks and the possibility to increase rates by 25 basis points in May/ June.

Most likely we will see higher prices in 3-4 days.It's time to buy this dip.

Open Interst data from 9th Feb

Here is the Open Interest table at the end of day trading on the 9th of Feb.

Put writers have taken the Open Interest at strikes 4600, 4700 and 4800 each between 4.4 and 4.8 Million shares by adding roughly about 10 % at each strike.

Infact total calls lots reduced by 3450 lots wheres put lots increased by 37450 lots day on day.

However the additon of 14.5% at 4800 in call Open Interest, indicates a tussle at this strike and the move to 4900 may not be very smooth for the bulls.

In other news, watch the news coming out of Greece tomorrow. There are rumours of a bailout by Germany flying around, yet unconfirmed at 11.30 pm IST, but may have an influence of direction tomorrow.

Bear Flag Alert !!

So the touch of the 200 DMA did not happen today...But it is still in play as long as the market is below 100 DMA at 5015 and does not close above it.

What I wanted to bring to your attention today is the Bear Flag I have been watching on the Nifty for the past several days.

The market conclusively broke out of the flag on the 5th and is now heading for a retest at 4860-4875 levels.

The pole at 5300 and the flag retest at 4875 levels, give this bear flag a reward of 425 points, which should put this market at 4450, should the pattern work-out.

Entry : At 4860- 4875.

Stop Loss : 4900

Target : 4450 or 425 points from the flag end.

Time frame : 15 sessions  from touch of 4875.

Pit falls : We have the 200 DMA at 4650 which should produce a bounce.Also seasonality wise, we are entering the budget build-up sessions which are known to be bullish.

Vtrender

Nifty-update

Nifty is very close to the 200 DMA at 4640 levels.

It will be a good spot to book shorts and consider a few longs.

A failure to touch the level today, would mean that the Nifty will have to visit again.

Generally according to the moving average rule, a break of 20 DMA should bring the 50 DMA, break of 50 should bring the 100 and a break of 100 DMA should bring the 200 DMA.

So a touch of 200 DMA is very neccessary as we have sustained below all the moving avaerages mentioned.

If we trade below the 200 DMA for 3 consecutive days, it would put the bears in business and the trend bearish for the Intermediate term.

Vtrender.

OI data from 4th Feb

My query in yesterday's post got answered by the action in the Nifty today, but the end of the day left behind another question about the range we find ourselves in.

Whilst the data was very clear yesterday about a down day in the markets today, I am not very comfortable in putting forward a view for tomorrow as the data throws up ambiguity.

Yesterday at the highs of 4940-4949 it was clear that the generals of the army- Reliance, State Bank of India and Infosys were not in a mood to go higher, today each was touching it's day lows as the Nifty was moving southwards.

Coming back to the Open Interest table:

What favours the bulls:

a) Exceptionally high OI of 7.4 million shares at 4800.
b) 48 K put lots were added today against 26 k call lots ( big diff from yesterday)

What favours the bears:

a) Addition of 38% and 26 % at strikes 4900 and 4800 in Call OI.
b) Bulls moving the defence line to 4600 by adding 11 % at 4600 today.

The addition at 4600 of 11 % by put writers may be sending us the message that 4800 may crumble and if it does then we reach 46xx levels in no time.

Important levels to watch for downside tomorrow are 4765-4785. Upmoves can be considered only above 4865-4870.

Open Interest data from 3rd Feb

Tuesday they took it down, wednesday they brought it up by an equal measure.

What's in store for us tomorrow? Data is pointing towards a market tomorrow, which may go down again.

After the inability to take out 4949 today ( which frankly I expected) stocks may open down tomorrow. Data posted on the blog in the afternoon and the one we have now at EOD, show the strike at 4900 increasing the call side OI ( bearish) and reducing the put side ( bullish).

Furthermore, between strikes 4400 and 5400, about 21963 call lots ( bearish) were added today whereas the same strikes witnessed a reduction in Put OI of 31343 lots ( bearish again).

The range remains 4800- 5000 as highlighted. Look for shorts below 4897 and longs above 4945.

Nifty

Well, the breakout above 4949 didn't happen.

Part of the reason was that the heavyweights like Reliance and State bank and Infosys traded below their VWAP most of the day and were nowhere near their highs when Nifty was threatening it's breakout.

Anybreakout by the Nifty without it's leading stars has to be viewed with circumspection.

I will post the Open Interest table later today.

OI for 3rd Feb- Intra update

A quick intra day update at 12.45 pm to discuss the positions taken by smart money.

IMO, the move from yesterday's lows is not over yet.

Notice the declining OI ( in yellow) of the call writers and the increasing OI of the put writers.

There is a good chance we will see 4980-90 later today.

OI data for 2nd Feb

It was an interesting day in the markets and the sell-off today would have caught many a person off-guard.

I was very interested to see what the Option Open Interest table would show at the end of the day, so I had a look at it. Here it is...


The data shows accumulation by put writers of about 33% at 4800, bringing the open Interest there to 6.96 million shares.The immediate posiibility is that of a strong support at current prices, but one must not discount the possibility that should prices hold below 4785, it will bring a strong swift move to the 200 DMA currently around 4600 levels.

The largest call OI base is at 5000 strike with 5.18 million shares.This will be a big resistence for the market to overcome should the levels around 4940+ be seen again.

The range of 4800-5000 has remained the same despite the sell-off today.

One should be playing for the bounce tomorrow.