The Indian Market Monitor

The Dilemma of Trading Overextended Markets

2012-01-27T18:37:00.000+05:30

Everybody knows that the markets are in the extremely overbought zone and are ripe for a break considering the overhead resistances discussed earlier. But what if the thing just refuses to go down and instead keeps going up tagging the upper Bollinger band? One must assume this and stay on the long side rather than taking any anticipatory short position. That's easier said than done but then who wants to miss out on a further rally towards 5400?

Time of the Day

2012-01-27T16:53:00.001+05:30

Does trading on a particular time offer any advantage? To check this, we divide one trading day into 12 slots of 30 minutes and the last slot is of 15 minutes. Then we check the high low percentage return in each slot. For this study, I randomly selected 60 trading days. The average percentage return in each slot is shown above. There seems to be some truth in the so called "the 2:30 factor" hypothesis which says that the market (Nifty) makes big moves during the last hour. And sure indeed - the percentage returns are higher during the last hour and also in the 1-st half an hour. The quiet period is in the 11:15 to 12:15 time. Maybe one needs to check this out on some more data and if you've done any study on this then you can shoot me a mail and share your findings.

Nifty 50 Stocks - % Away from 50

2012-01-26T15:15:00.000+05:30

This table shows by how much % each index stock is from its 50 day average. This data sure deserves an "overbought" stamp.

The January Blast - Will it Last?

2012-01-26T14:23:00.000+05:30

Above is a look at how the various sectors have performed since the beginning of this new year. The benchmark Sensex (light blue bar on extreme left) has gained 10.5%. Capital Goods and Real Estate top at 26% and 26.6% respectively. Banks have done 23.7% and Metals are at 22.3% The sectors which were leaders - FMCG and IT have underperformed at 1.5% and -2.2% respectively. Health Care is at 6.2%. Autos and Oil / Gas have done around 11%.

One thing is clear - the sectors which were beaten down have rallied smartly while the leaders have not. And that throws some doubt on the sustainability of this recent blast - the whole thing may turn out to be just another bear market rally. Let's take a look at the weekly chart:

There are big resistances to deal with - first is the 200 day average (=40 on this weekly) and then there is this huge trend line resistance (cyan line with yellow circles). Fail to cross these and we're back down with a bang.