Crude

I have been watching crude doing it's shenanigans for the better part of the past 3 months, where it has been gyrating between 71-83 threatening breakout and breakdown at diiferent times.

Over the past 3 days when stocks have been beaten down across the globe, crude has done very well to hold on to it's trendline support of the P'nF charts.

Take a look..

It is at a great action point from where the odds of it reversing higher are much more.However a print of 71 can change all of that.

I consider crude to be an important market measure. Quite simply, stocks will not move lower if crude is stable or exploding higher.

On watch for the next week along with the this technical level on crude would be stocks in the energy patch like Reliance, ONGC, Cairn etc.

They are compelling buys with risk easier to manage.

SPX Futures- Swing trade perspective

My last post had called for a 20 point gain in the Spx after the vertical fall on Friday.

Seems that today we are on our way to realise those gains. The question now is where do we go from here?

We have a fed meeting on, though I do not see it make a big difference to what will play out on the charts.

We are back in the price channel ( white rectangle) from November after friday's drop, and so far today have done an excellent job holding on to the yellow Trendline from August.

It's quite clear from the chart that a break above 1110 would put us back in the 1125-1150 range again, atleast 1125 would be a certainty.

On the other hand a break below 1080 can put 1055 and even 1025 in play and in quick time.

We'll come back to this chart in the next few sessions and see how it plays out.At the moment though it is 1080-1110 in the futures.

SPX- Revisted

My last post here called for a halt in the rally at 1146 in the SPX, to be followed by about a 50 point drop in the index after it hit that level.Also noted was that the Vix had bottomed up and was wanting to resume it's journey upwards.

Let's look at where we are now. First the chart of the Spx

We are having important support ( green line)  which has been defended for the past 3 months. Also the oversold nature of the MOSC at a level last seen in October 2008, points to at least a 20 point pull back in the index in the next 2 trading sessions.

let's look at the Vix:

27.31- has been a vertical climb and now calling for a pullback.

Those who booked their shorts and carried longs would be a happy bunch on Monday.

Open Interest from 20th Jan

Finally we may have the range of 5200-5300 in the Nifty give way tomorrow....to the downside!!

At 6.68 million in open interest the resistance at 5300 is here to stay till the end of this expiry week. What was notable today, was the addition 7.5 % in Open Interest at 5200 by the call writers and the reduction of 2.5% at the same strike by the put writers.If you see this action of the put writers in the context of the 7.55 % added at 5100, it points to a move closer to 5100 in the index.

Well tomorrow we'll know anyway..

Nifty- Daily chart

In keeping with the range bound behavior exhibited by the markets and as analysed by Shai in his Open Interest Tables, here is a daily chart of the Nifty over the past one year.

The market is moving within the ascending wedge as shown.The wedge has still some time to go for it's completion, but I'll be watching the two horizontal lines drawn, the first of which was defended by the bulls at 5180 levels.A failure at this level should signal a 80-100 point drop in the index in quick time.The other level to watch is the region around 4600 levels.

Open Interest data from 15th Jan

Open Interest data from 15th Jan shows stong accumulation in the 5300 call as well as the 5200 put heading into the weekend.

Whilst yesterday we had seen a lot of accumulation in puts at the 5200 strike, today we saw call writers adding 15 % at the 5300 strike to bring the open interest there to 6.5 million which is a formidable resistance to overcome.After adding 8.5 % yesterday, put witers added another 7.7 % today at 5200 bringing the total there above 5 million to 5.36 mn.

So, the players are expecting the theta decay to work over the weekend as can be seen in the OI concentrations at these strikes.

I have not seen the implied volatility at these levels in a very long time.Markets will remain range bound between 5200 & 5300 till we see OI declining at one of these 2 strikes.

OI data from 14th Jan

Above is the Open Interest figures of Nifty for the trade dated 14th Jan.

Put writers added about 9% in OI at the 5200 strike and call writers reduced their exposure by 11.5%, in the process confirming the recent low around 5200 as a very big support for the market going forward.

But the call OI of 5.6 mn at 5300, would still be a formidable resistance for the bulls to overcome.So even though the bias is positive, the upmove will be a laboured one.

What is important to note is the drop in IV's from 4th Jan of about 4 basis points from 23 to around 19 levels today.

There is no fear in the market as bears have failed to show up in numbers.

Vix and the SPX

We are at an interesting time in the markets.

On a longer-term chart of the US Vix, we can see that complacency in the markets is at an interesting point.This particular point where the VIX closed yesterday used to be the high 'fear point' a few years back between '04-'07 when the bull market was in it's full swing. A print above the 19 level as that point was when fear was at the highest and market would resume it's bull run after the index moved below this level as can be seen in the oval points in the middle of the chart.

However between '00 and '04 and between mid '07 to today, we can see that the market has been well over the trendline, but far removed from the highs of 80 it touched in '08.So are we complacent now or are we returning to the 'fear' days.

Let's look at the index chart-SPX

Overhead are 2 important points at 1146-1170 levels.

To summarize, we are calling for a pause at these levels, just noting that VIX is a contrary indicator and should resume it's upward journey from these levels.The SPX should correct by about 50 points before it resumes it's journey upwards.

OI data from 12th Jan

The market justified the Open Interest data from yesterday by shaving off 48 points from the Nifty Futures.

I have updated the chart with today's data which points to some more downside.The US markets are at an intersting point now ( 11.00 pm IST) and further downside there, should point to a gap down open tomorrow.

It will be interesting to watch the behavior of the 5200 PE writers in the first session tomorrow. Obviously they would expect the recent highs at 5180 levels to hold as support, but if they don't watch out below! A liquidation of the 4.8 million in OI at the 5200 put strike can bring a quick move down.

Open Interest for Jan 11th.

Here's a look at the Open interest table at the close of yesterday's action in the Nifty ( 11th jan 2010)

The tussle between strikes 5200 & 5300 between the call writers and put writers has been on now for over a week resulting in the index moving in a small range for these past few days.

Around 5 million approx in OI at these strikes, a resolution to the impasse can lead to a quick 100 point move in the index within a day. The question remains- which direction?

The larger range for the January series remains 5300-5000.The OI at 5300 has been steadily building up and remains a formidable resistance for the bulls to overcome.

The bias is for a small smart move to the downside to pick up the momentum

Crash 2010??

Here's a closer look at the chart I posted yesterday for the Nifty.

The decade long rising TL was broken and retested, a test which failed resulting in the index losing 2500 points in a month.The TL was tested again to the upside and the index took over 3 months to rise above it this time.As can be seen, the test was successful this time and the market rose.

After a good 2009, for the bulls, the bears are calling for a repeat of 2008 for the year 2010.From the chart above the odds of a crash happening anytime soon are slim.We are in a cyclical bull market and the credit markets aren't even close to signalling any kind of a dislocation in the near future. Sure, we are due for a correction and we should have one anytime now, but it would be just that, and one which should be bought.

The excess money provided by central bankers would find a way in some sector in the coming months leading to another bubble. In 2000 it was IT. In 2008 it was real estate.We'll have to see what we have come 2011-2012.Inflation would rise as the liquidity ( caused by the likes of RBI, FED printing money in 2009) makes it's way into our lives.

I'll leave you with this chart I was emailed sometime back in 2009.

Just replace the words ' real estate' with the next sector which will bring the downturn.

Charts-The Story?

Let's have a look at the chart above. It is a candlestick chart without any of it's parameters like price or volume specified.
If you considered it to be the chart of a stock, what inference would you derive about the stock?. One would certainly say that the stock looks very strong.It is rising for over a year and holding it's uptrend.The immediate presumption would be that the stock can continue rising...

The chart is that of the daily price movement of the Nifty for the past one year.It certainly looks strong heading into 2010.

Let's take a look at the weekly chart of the index for the past decade.

Now see our blue line is being supported by our decade long brown trend line.Now one can safely infer that the market would remain positive till we get a weekly close below our brown trendline.

Many a time we squander profits or end up with losses by looking a the micro picture.No wonder day traders have the biggest loss-win ratios in the market and investors walk away with the biggest gains.As a trader, short term or long term, a proper understanding of your trade in the context of the time frame helps convert that loss into a profit, other parameters being right.

What are these other parameters?The crash of 2008,put an end to the much talked about decoupling theory. It is now very clear that our Indian markets are affected by multiple economic relationships across globalised trends.Hence an upmove in Oil or copper or the Dollar as well as interest rates across the pacific can have a bearing on the sentiment here.

Through this blog, I intend to utilise the intermarket relationships amongst markets to bring to you profitable opportunities in diversified stocks and indices.