Investment or Trading in the markets at High levels. Comparative Analysis & Low Risk ideas

In our last blog post we mentioned that Indian Indices are likely to relatively outperform the global indices and also shared some trading/ investing ideas to leverage this opportunity with lower risks

Here is a quick recap of the potential options to capture this opportunity  versus the global indices:

1.     Global futures specially Dow jones and FTSE are traded in NSE and can be used as a pair trading opportunity with our index( that is short in Dow Jones and Long in NIFTY)

2.     Similarly there are mutual funds which offer investing opportunities both in global markets and NIFTY ETF. If one is long on the former it may be a good time to switch into NIFTY ETF’s

3.     For those who want to stay to our markets, one can bet on relative upside and start picking stocks in a mixed manner. By mixed I mean pick up partly sectoral stocks that have outperformed since 2010 and pick up sectoral stocks that have performed mildly or underperformed since then

- See more at: http://www.powertrades.blogspot.in/#sthash.tnukRceY.dpuf

We received many feedback on this and expectedly lot of you want to try out option 3 ( that is keeping investment positions in the indian equity markets with a mix of opportunities

To take it from there we present here a comparative analysis of the various sectoral indices within Nifty.

NIFTY Sectoral Indices- Comparative Analysis

We have considered the following indices:

·         BANKNIFTY (NSE BANK)

·         CNXIT ( IT Stock indices)

·         CNX100 ( Top 100 CNX stocks)

·         MIDCAP Index (CRSMID)

The graph below presents how the indices have done against each other since the highs of 2010 was made.

It is clearly divided into three sections:

·         Outperformance: CNXIT

·         Flat performance: CNX100 & NIFTY

·         Underperformance: CNXMIDCAP & NSEBANK

Potential strategies in equity investments:

1.     Balanced Traders can Keep a mix of stocks especially from the top 2, that is CNXIT,CNX100 and NSEBANK. This way in case of a downward consolidation CNXIT stocks will ensure that the portfolio selection does better overall and in case of outperformance BANKING stocks may outperform the benchmark index

2.     Selective stock picking of not more than 10-20% from the mid cap sector. Look out for midcap banking stocks.

3.     Aggressive traders/investors can look at stock picking exclusively from NSEBANK & CNX100

Nifty Outlook. Where are markets headed. Trading zones at these levels

Nifty futures have corrected sharply for the last few sessions. Some of it was triggered by a news based move and part of it coinciding with classical divergence patterns combined with price point analysis.

Here is a look at what has happened on the charts and where are we headed from here. NIFTY is approaching interesting levels here. Here is a look at the hourly charts of Nifty and an analysis of it.

NIFTY FUT SHORT TERM SWING CHARTS

Nifty has displayed a classical divergence pattern with RSI where RSI failed to make a higher high despite markets moving here. Once it failed to breach 6180 there was a look risk contrarian trade opportunity near that levels.

Since the crash that we witnessed post the RBI news NIFTY has been falling with a descending pattern across a channel. The channel low is now at 5840 zones.

The trading levels of 5840-5810 is also a support range to watch out for . swing wise this will be the key level to watch out for. This may provide a low risk contrarian opportunity.

A breach of that level can lead to a test of 5745 and 5640 on the lower sides. On the upside resistance remains at 5960 trading zones and any pull backs to that level will be resisted.

Only if NIFTY Fut manages to  close above that level can ensure a reversal of the down ward swing and a resumption of the upward move. 

What was Unique About the August series. What Lies ahead For the Markets Now

August series for 2013 was a unique month in lot of ways.  This will also go down as one of the trading outlier months for more reasons than not.

What happened in August that made it unique?

Point No 1: Well for starters markets showed tremendous amount of volatility with more those acceptable volumes. We witnessed major index futures moving to the tune of 5-8% on some of the days. This is something that we don’t hear often in advanced market. Do you remember when was the last time Dow jones or S&P moved to that extend

The interesting part was that we witnessed a gradual downside trend despite this move and more that acceptable volumes.

Point No 2: Most days in August saw a gap up or gap down of 2% plus on the major indices and yet on many days we didn’t see a follow up move on the side of the gap. This is something unusual for major indices. While our markets are known for this. The frequency was staggering.

Point 3: Our long time readers will recall that way back in Jan-Feb 2013 we had written that Weekly ATR was at its all-time lowest value and we should see volatility increasing over the next few months. This is what we exactly saw in the last few months. With Volatility peaking to a unusual high levels in August. This was in expected lines, but at the same time now the daily ATR stands at very high non sustainable limits.

Point 4:   In august thanks to increased volatility we saw India VIX peaking to its highest values since Mart 2011. VIX jumped significantly clearing indicating decreased risk appetite and confidence in the investor segments.

Now what lies ahead for September:

NIFTY FUT CHARTS-2ND SEPT -2013

Since the volatility indicators have deviated significantly chances are they will consolidate here. But even then since they are at such high values we expect a moderate consolidation to come through. This only co relates to the rate of market move and not the market levels.

Trading levels wise Critical swing hurdles lie near 5530 levels and clearing that we are all set to test 5605 levels on the upside. It will be important to see if we manage to close above those zones to indicate any signs of trend reversal on the charts.

While on the downside 5450 and below that 5300 will form a strong base for the series.  From a swing trading point of view it may be good to trade reversal within these zones both at upside and downside and look for a break out trade outside this trading zone.