NF Composite Profile

Coming back after the holiday, we have an amazingly flat open in the NF.

The open in range and value suggests more of a sideways bias after 2 back to back neutral days.

Since the gap up , the market has tried to fill the gap zone and you either buy at the low of the range or sell higher.

The market action is becoming very predictable and we know that something which everyone knows does not last!

Here is the composite profile for the past 6 sessions giving value area high at 5258 and a value low at 5262.

The profile is clearly balancing around 5314 which is the composite POC.

It will also decide the short term bias as the market looks to exit this 6 day value.

Price n time (3)

This is a continuation of our series on looking at Price through Time Cycles.

In my last post made on Sept 3, I had called for the beginning of a new Intermediate term ( IT) cycle around the Sept 20th period noting that the then prevalent cycle had made it's max run and the lows would hold.

These were the observations :

"This current cycle has done 1020 points, which is the upper extreme for any cycle.

We feel the lows of the cycle will hold over the next 10-15 days by which the new IT cycle should begin.

For any up moves, 5123 spot will be the first Resistance line on daily closing basis, above which the market can attempt a gap fill  and go up to 5400 levels.


On the upper extreme, 5645 is the max the next cycle can stretch to" 

Let's look at the charts to see what happened

 

We are now in the third half cycle for the current IT, which should end in another  5 days and mark the center for the current term

The current  IT cycle should close out by the year end and as we are in the middle band as far as timing the cycle is concerned, there is no noticeable evidence of the cycle being left translated here.This clearly means that in the time span running into the year end the market has bigger chances of running up than down.

For the biggest bull out there, if you are trying to guess where the market will be by year end ( about 2 months) then the projection puts levels at 5754 very close to the 5654 I have projected earlier.

 However that is the max upside levels for the year and the market has to do a lot of work before it can even attempt to come closer.

Let's Look at a profile charts of the last IT cycle to understand where the volumes occurred.

It's now an open secret that the buying happened around the 5110 zone and it shows the biggest volumes.

But if you look at the profile on the left, you would notice the volumes around 5570 region which brought the market swiftly down the last time around.

Also the ovals ( in charts)  show the lack of volumes in the previous IT cycle in the current trading zone, which is a clear double distribution mechanism or a DD as we call it.

So there are 2 possibilities for the market over the next few weeks leading into the year end.

Possibility 1 : It auctions this low volume zone of the previous IT cycle and moves towards efficiency.

Possibility 2 : It gets attracted to the High volume zones at 5570 and above at 5650 , auctioning for a while in that zone before moving lower for the next IT cycle.

The stop loss for both cases would be the lower 5110 region.

Possibility 1 is our preferred scenario and would mean a consolidating market till the year end.Within this a break of the previous gap zone of 5240-5340 would set-up exciting possibilities.

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FnO Datasheet 05-11-2011

My Notes:

1. The series so far can be grouped into two parts. In the datasheet, from 19th Oct to 25th Oct, the day of last series expiry. And, from 26th Oct to till date. From 19th October to 25th October, The November Series NF has added approximately 2.2 crore contracts. And in that time span, Nifty has traded with a low of 5085 and high of 5229. It is interesting to note that from 25th October, NF is trading above that range and made a low of 5221 on 3rd Nov, only to stage a 130 point rally. It looks the repelling effect of the highest volume zone. :)  In my view, the longs should feel comfortable as long as we are trading above that zone. 
2.  The FII OI in this series has started at 5.7L contracts on 25th Oct. It has increased to 6L contracts on 31st Oct, when we made the top of the series at 5402 and has decreased to 5.36L contracts as of now. So, approximately 10% of their OI has been reduced - it is safe to assume that they have booked profit. 
3. In the same period, NF OI is almost unchanged. On 25th Oct, the OI was 2.61 crore and now it is at 2.68 crore - a change of 7L contracts - which is negligible. So, most of the contract holders are still playing for a bounce much bigger than what we got so far. Remember, they are into this position from 5100-5200 zone - and they will start reacting only if NF gets down below 5200. So, as long as 5200 is held, nothing to worry for Bulls.
4. On 31st Oct, the day of euro deal, FII bought equities worth 2100 crore. If we take that out, from 19th Oct to till date, they have net bought 300 crore equities - almost negligible. It is interesting to note that, during the same period DII have net sold equities approximately 3K crore. There are 2 inferences we need to take out of this - firstly, this rally is again something that is being played out in FnO segment only - The huge premium in NF is an evidence of that. Secondly, DII are selling equities into this rally. 
5. From the above observations, my personal take - We are not still into any bull market. Still, this is a game played out on the FnO front. We do not get into strong bull trend with out sufficient backup in the equity segment. Probably the institutions also are adopting a wait-and-watch policy till the global dust settles down - and are playing the market with a very short term outlook - perhaps manipulating the index on a series by series basis.
6. The option table indicates that 5400CE writers are unmoved in the upmove and 5200PE writers provide good support on the downside. We might trade for some more time in this zone, before a meaningful move occurs. From the Market Profile dimension, Shai says 5250-5350 is a zone where we do need to spend some time - as it has been a zone which was always crossed with a gap up or gap down. So, playing for the range bound trading might be a useful strategy. 
7. Our FII OI SAR stands at 5255. It has been proving to be a reliable number to depend on - we will continue to monitor it. Stay long above it - and short below it.
8. Where do we go from here? Though it is a matter individual opinions - I have to responsibility to state my opinion being the writer of this article. I do believe we are closer to a top than bottom mainly due to the equity selling by DII. Again there might have been instances of DII selling closer to bottom - but still - let market correct my opinion. :)
9. You can find the entire datasheet here.

Spx in Profile

Today's profile is developing in the range of yesterday which was an asymmetrical profile.

Also the gap zone from 3 sessions prior is being worked around.

There are prominent POC's below near 1233 cash and 1227 cash and are expected to give support.