30 minute Profile

The just concluded derivative series was a flat one month-on-month which was not at all surprising considering that we had vix readings of less than 20 for most of the month.

Those who followed the Vix tables would have noted that the expiry would be around 5252-5272 levels and we came to within 10 points of our high estimate with a high reading of 5262 today.

Coming to what is in store for us tomorrow here's a look at a 30 minute profile chart of the Nifty spot :

It was clear with a positive gap and the lack of selling through the day that buyers were in control and remained so throughout the day.

I was tempted to short the market at the important 5255-5260 level, but refrained from doing so as the close was strong and near the highs of the day. The action suggested a continuation higher.

Ahead between 5272 and 5307 we have two important profile zones.

1) The High volume region of 5292, calls for a slowing down of trade and ample opportunity to scrutinize and take a new call on direction for the week ahead.

2) 5272-5307 is also a gap from a few days back and the upper level of 5307 if breached should be the stop loss for positional shorts.Below 5272 shorts will be safe.

All the above are spot prices.Please take the levels as approximations as the volumes may not be correct.I do not have a data feed of continuous futures hence posting the profile for the spot. Also because we are rolling over today, tomorrow may be the right time for a new chart of the futures.

I'll catch up with you over the weekend with some more profile analysis.Till then happy trading.

Market Profile Q & A

I'm still on travel and don't have my laptop to post charts of current action, but am taking the opportunity to answer some questions which have been put to me here as well as the several mails I have recieved on the subject of market profile.

Allow me to start from the very beginning, which is that market profile as a system is used to track order flow i.e to find the role buyers and sellers are doing at any point of time in a given stock or index.Hence the system functions the best for the intraday player who likes to take decisions based on the chart action on his screen.A good understanding of Market Profile and especially value will help this individual to see much ahead by understanding who is in control on the chart.

Having said this, the profile on a weekly and monthly basis also gives you a good idea of control. All you would need would be weekly/ monthly value areas with stops and targets below and above these.

I will hasten to add here that Value Area though an important part of Market Profile is not the sole criteria in determining the trade.Your study should include day types, buying/ selling tails, initiative/ responsive activity and study of control over a time frame.There are many more but these are a must.

On another note,the market profile is a study of price, volume and time. The value areas are a function of price and time as well as price and volume.You have to differentiate one from the other.The values will be different especially in trending markets.The jury is still out as to which works better, but I have made the switch to price and volume some time back. This is not to say that volume profile is superior.

Again, the profile chart is dependend on accurate data flowing in.The best results are from tick data, though snapshot data can give equally good results.A word of caution for those who rely on yahoo etc. Reuters and esignal are the best.

Also, values for the indices are on futures only as the spot is not traded.The volume shown on some spot indices is derived and not actual so carful there.

I have tried to answer most of the questions recieved, but should there be more I will be happy to assist at virenras@gmail.com.

Cheers.

P.S- Appreciate if you can post any more queries here in the comments section, related to the functionality aspect of Market Profile, so that it becomes a learning process for all.

Corelation (2)

This is a follow up to a post I had done on the 19th of March on inter-market associations for the swing trader, especially the kind who takes his cues from overnight moves in the SPX or the morning moves in the Hangseng or the Taiwan index. You can find my last post on the subject here.

I want to give a shout-out to Manu who follows the Taiwan index and had requested for the post.

That all the world markets are inter-linked is a foregone conclusion (especially for me) and the same can be verified by plotting their charts on google or yahoo finance where a study stretching back several years can show you similar peaks and troughs.

With that knowledge as a background, one can use one market to predict the moves in the other simply by using the popular "revision to the mean" approach.

Here's a chart of the co-relation:

The traditional co-relation factor between the Nifty and the SPX and Hangseng is 90 % whereas for the Taiwan index it is 73 %.

Now if we look at the 50 day average one can argue that the Nifty has underperformed vis-a-vis the SPX and the Hangseng.

The 10 day average shows the pendulam swinging towards the historical average and the 5 day shows a break-down in the Nifty- Spx relation, but not the Nifty-HSI.The chart shows that the Nifty-Hsi and the Nifty-Twii relation has gone back to it's historical average

We can analyse 2 things from the 5 day average data the chart shows :

1) The Hangseng and the Taiwanese indices are highly co-related at the moment to the Nifty ( 5 day average = historical co relation) .One can take cues from these markets for the Nifty session for the next few days.A higer/ lower close there should mean the same for the Nifty.

2) The breakdown between the SPX and the Nifty brings the principle of  "revision to the mean" in play.So either the SPX will correct over the next 10 days or the Nifty would rise over the next ten days to ensure balance.

Remember these are only cues to take note of. The best trades will always come from  the chart which is open in front of you!

Volume

Here is a time, price and volume breakdown ( in excel) of the Nifty for the past 2 days.

The volume component has been filtered to show only block trades of a lot size greater that 35000 units.

The volume at around 1.30 pm was over 11 times higher than my filter.Within the hour the Nifty had dropped by 45 points.

For tomorrow, let's watch the same levels to see if we get the supply again.

Friday

We never got that move above yesterday's POC as expected. There were just 2 probes all day above POC and they didn't last a full 10 minutes in a 390 minute trading day.

It showed seller dominance all day as well as the fact that the break-down from yesterday was accepted.

There are some buyers at 5245 as can be seen by the level holding up today as well as a few weeks back.

5270-5258-5252 are the values for Monday.

A break below 5252-5245 should set you up for some good profits on Monday.

Closing Comment (2)

Couldn't resist. but I closed out 3/4th's of my shorts at the close today.

Here's why:



Regular followers of my comments on this blog and on Just Nifty would know the similarity of this chart with the one I posted last Thursday, exactly a week back.

To be noted is the location of the POC very near to VAL and in a downtrend implies that strong hands were buying into the close.So I had to let go of a few shorts...

For tomorrow if we get an open around POC, one can buy for a quick 30-40 points with a Sl just below today's day lows.Remember open has to be around the POC.

Last Friday, the index moved between the two ends of the bracket 5305-5395 and subsequently we have moved the same range all these days up until today afternoon.

I expect the tape to check for unfinished business at the lower end of this bracket (5305 thereabouts).From here it can be value area high or today's lows depending on who prevails.

Below 5260, the high volume POC at 5225 calls.

Closing comments from 13th April

I missed the commentary from Viren today, but I held on to this email he had sent at the close on Tuesday.

Reproducing here ...

Viren
to		vtrender@gmail.com
date		Tues, April 13, 2010 3:17 PM
subject		Closing Comments

Some closing comments before I move..

Market Profile points to a move downward in next few

days.This is evident from the lower value established in trading today.

Option data though range bound btw 5300-5400, points to

a weaker 5300 PE as opposed to the 5400 CE.

So we may see break of 5300 PE OI, if not this week then

definitely next week.



My money is on the short side for my swing positions

in the short term.


April 13, 2010 3:17 PM 



Hope to see you back soon, buddy!

Crude

I had last commented on Crude late in January in this post here.

We had observed the range between 71 and 83 and noted how 71 was a short term bottom.

I have always felt an inclination to study more about crude after the monstrous rally it had at the end of the last bull run.Generally when crude rises, it takes everything along with- stock market and inflation included.

It is also my belief that financials and real estate lead at the start of a new bull market and generally energy and commodities are the last to rally.

So the fact that we have now broken out of the 83 level will  mean higher inflation which brings higher interest rates and that means that this bull market is on it's last few legs.

This may be surprising to a lot of people but the steep climb from last year may have taken away a few months from an otherwise typical bull market in stocks

One of the biggest memories from 2008 was the crash of Crude from levels of 148 to about 33

At the moment, we are talking only of a minor correction in stocks in the very short term, but if crude keeps exploding higher from here to about $105-$120  we may be looking at this bull in it's last breath.

Travel

Some light travel plans and some pending work will take me away from my "Day Trading Desk" for the next few weeks.

I may not be able to update the blog regularly during this time.

Thank you in advance for your understanding and my good wishes to you.

I 'll leave you with today's chart of the Nifty :

Baltic Dry Index (BDI)

Most of you may be familiar with this term and may have read about or seen charts of this index.

For the uninitiated the Baltic Dry index is not just another chart in the global "stock market" or the "market of stocks" as some prefer to call it, but it is a leading indicator for economic activity and the chart needs to be seen as one.

The index is maintained by the Baltic Exchange. The cargoes being moved are raw material commodities such as coal, cement, and iron ore which are shipped through 20 different routes throughout the world. The index does not concern itself with finished goods or container ships, only raw materials and dry bulk specific ships are factored into the calculation. Hence it measures the demand for raw materials which are pre-cursors to production.The BDI offers a real time glimpse at global raw material and infrastructure demand.

Now the chart :

Notice the fall from 11793 to 693 coinciding with the Lehman Brothers stock market crash when world markets went into a tailspin.

Subsequently this chart has made higher highs and higher lows- up untill now that is.

I have also put a 40 week moving average on the chart and prices are just about there.

So what else can we glean from the chart from a stock market point of view :

1) Economic activity is robust as long as price holds up around here and continues to make higher highs.

2) Economic activity may be slowing down if 2571 is not held on the chart.

3) 40 week MA seems to be flattening, indicating that most of the recovery is already priced in.

Based on the above chart pattern, individual stocks on the NSE like GE shipping, MLL, SCI etc may be at great action points.

Trend day

larger value areas for tomorrow will give good trade facilitation.

Seller has been in control all day today and kept price below VAL.

The open tomorrow will be crucial.

Advantage Buyer ?

Up-Down-Down-Up and the result was a neutral day.

Today the seller showed up as expected at 5400 ( +,-) levels and promptly took the market right down.I got into a short position at 5385 on the reversal from 5397 and booked out near VAL, which I expected to hold. It did- only for an hour and I got into another short position at 5251 from which I got properly whip-sawed and made an exit at 5374.The result was also a neutral day for me.

The whip-saw is the subject of today's post and my reason to be slightly bullish on the market for tomorrow. Here's the chart :




We knew from yesterday's chart about the presence of the seller at 5395-5400 levels.From Today's chart the buying tail from 5345 shows the presence of the buyer and his intention to defend that levels. Incidentally 5345 is the break-out level from a few days back.


I have often twisted James Dalton's question quoted in my post here (and with due apologies to him) to find out a bit more about the buyer and seller. I often find myself asking during the trading day:

What is the Buyer (seller) doing?
Is he doing a good job in his attempts to take the market his way?

The seller had his chance to drive the market down today and failed ( besides causing me losses). We have noted earlier that his actions have been only responsive.

The buyer managed another higher close in value.He will take on the seller now at 5400 levels and I expect him to win this time around. This should point to a print of price above 5400 levels tomorrow.

Neutral

After looking at the day action today, my mind goes back to James Dalton and his famous words to analyze the market in his book " Mind Over markets "

Which way is the market trying to go?
Is it doing a good job in it's attempt to go that way ?

After today's tape, from a day-trader's perspective, we do not have an answer to those questions.We had a neutral day again or a doji with both buyers and sellers involved in the action of the day.Today's action leaves us with no edge for the session tomorrow.Here's why?

Buyer camp : Good job defending value area high and bringing value up from yesterday.However inability to drive it further up after yesterday's momentum was telling.

Seller camp :Seller has showed his inclination to drive prices down from levels of 5380 and upwards.This was evident at the opening itself and later as he cut-off the rally from Value high.However the selling was responsive, not initative.He responded to higher prices only, but could not force prices through value.

So where does that leave us for tomorrow:

Unfortunately not with much, but the takeaway is that we know the seller will be waiting around 5400.

Drift and Run

Another day, another profile, but the same result.

Both Thursday and Today, we drifted higher all day, before breaking out in the last hour of trade.The aggressive seller last showed up on Wednesday last, but was met with equally aggressive buyers resulting in a doji that day or a neutral day in Market profile terms.

However in the past two sessions, the seller has been Missing In Action.

I was a bit concerned about the dwindling volume ( marked in the Nifty chart) in the last 20 minutes of trade, but was happy to see it pick up again.Going by today's action, 5400 seems possible in morning trade tomorrow, but for it to move down from there the seller will have to assert himself.

Monday : Pre Market

Hello All,

Back to my desk now after some Easter Festivities and looking forward to an eventful week in the markets.

I tried uploading a post on Saturday on "Mind Over Markets", but it was taken down later by the admin here, as the layout was not fitting in the blog structure. So my apologies if you had a blank page greeting you over the weekend.

The high note of thursday's sesssion was the total absence of the seller from the market.Hence bulls were able to drift the market higher.

SGX Nifty is pointing to an open around 5340 levels in the futures, which are prior highs.Expect some consolidation and a tight range in the morning session.

A break of 5312 on the downside should put Value Area Low into play.

Here's the chart: