I have often encountered hostile reactions in blogs and public forums, when I talk about the US markets or the FTSE or the Hangseng where the discussion is around the Nifty. They say Dow, Cow and Mow do not matter in the Indian context. Really? I wonder whether some of these fellows were born post January 2008!
To illustrate my need for this post, let me put up this chart:
This is a chart of 4 major indices : Nifty, SPX, FTSE and the Hangseng.
It is a foregone conclusion simply by looking at the chart that each of these markets is connected to the other albeit in varying degrees.
And as you can see they are making their moves together....but that is the broader picture.
I'm here to talk about the minor deviations, get a bit more precise and develop edges in different time frames and to use one market to predict moves in the other.
Sometimes one market knows something the other doesn't and that's where the edge develops.
If two markets are in focus, and they move at the same time together, then it does not help, but it is a confirmation move- one for the other. But when these co-relations breakdown one becomes predictive for the other.
This is what I found in the Nifty a while back...
Here is a snapshot of an excel sheet I maintain :
To the right I have closing prices of the indices for the past one year. The box on the left is the co-relation factor with the Nifty.
As you can see, the corelation with the US spx is 91 % and that with the FTSE and the HSI is 90 %. Incidentally Nikkei is the least at 84 %.
Now let's get to the interesting part :
I have plotted the 50 day and the 10 day averages for the co-relation.
If you see the 50 day average fore the Nifty, it is negatively co-related ( had broken down) and in the past ten days there has been a revision to the yearly average.One look at the 50 day average , 10 days back, would have told me that there has to be a big upmove coming.
The co-relation can work the other way around too...the Spx or the other indices can fall to make up with the Nifty, but the odds are better for one index to move up than for four to fall.
In view of the expected drop on Monday in the Nifty on account of the RBI's announcement, one would be advised to keep an eye out on global indices and this co-relation index.
Posts
9 comments:
Cheers Shai.
Excellent post.
Spy closed at max pain of 116- to the dot.It is 3 months in a row now , it has closed at max pain. Wish somebody could get that piece of dependable software to our very own Nifty.
Gm All,
----------------------
Markets are expected to open gap down on RBI's surprise announcement which was not factored in the market.
Look for support to come at 5178, then at 5162 thereabouts.One can consider longs if these points hold for half an hour atleast. Look for a trade towards 5210-5215 from these points.
Another cue : watch for OI at 5400 put strike.Signs of reduction there will be bullish.
Low of the day has been 5180, so far
Aggressive buying from the open.
I'll post updates if I find something actionable.At the moment lots of play in the Cement sector.
thnx shai and viren..
shai amazing co-orelation..plz study down ciruits co-relation too may 04, may 06 and jan 08..if u need data do tell me..manunidhi21@gmail.com
Manu,
The thing about this cor-relation thingie is that it is applicable for the swing trader who gives 3-10 days for his trades to work out.
I have the data and will put up a study of the 200 week and the 200 day v/s the 50 day and the 10 day we now have.
@shai thx
it will be interesting if u scan those days..as in these days only one cn earn owsome..i ws able to track 5th of 5 of ew topping on 10 jan 2008 and ws heavily agressive short but 0n 18th jan , i covered all my short positions and jst took one long in rnrl(god knws y?)..the loss took away mu whole year earnings..:)may be i was prejudice after taking 8 days shrt and earning..
POC and VAL rejecting price at the first attempt.
Even though we are below value, indicating sellers at play, the early morning aggresive buying offsets their advantage.
Longs are in business till 5242 holds.
Shorts are on only below 5235, as momentum favors buyers to this point.
Manu,
U are not the only 1 grieving your losses for that year.
Spare a thought for the likes of Bear Sterns,. Lehman and others.
shai
i m asking u abt down circuits and not long term down trends..
jan 08 and not seo 08:)
Post a Comment