How Nifty option traders made a killing in January ??

Nifty moved from 8070 to 8970 a move of 900 points within January 2015. The move came unexpected and riding on the wave of some positive news developments and could be a major part of the pre budget rally.

Option traders, who positioned themselves for the move made a killing of upto 400% return within the month. However, the question is, was it possible to identify this upmove well in advance ??

The answer lies in the theory of Integrated Trend Analysis which forms identifiable patterns in Triple Trend Oscillator (TTO) to forewarn  impulsive move and is a proven and  fool proof method of  trend detection to position onself ahead of the move. A synchronized bullish alignment is one such pattern which identifies a bullish impulsive move well in advance and is always almost 100% accurate.

To know more about  Synchronized Bullish Alignment :
http://eqtrend.blogspot.com/2014/03/synchronized-bullish-alignment-super.html
http://eqtrend.blogspot.com/2014/03/trading-f-using-tto.html
http://eqtrend.blogspot.com/2014/04/trading-naked-options.html

In the hourly chart of Nifty below with the TTO,  post a mild correction around 13-14 January, all the three trend oscillators - major, intermediate and minor were positioned above zero, with the minor and intermediate trend oscillators continued to be above the major trend oscillator. This is a perfect setting for an impulsive move that followed.

Nifty Hourly Chart

The trigger (black dotted) line continued to oscillate around the zero line and giving a risk free (black arrows on the price chart) entry into the impulsive trend every time it crossed over the zero line. The weakening of the trend was indicated by the intermediate trend oscillator falling below the major around 28th January, which is where the intermediate top has been made.

The following table shows the option prices for Nifty 8200 call options during January 2015, indicating the super profits that accrued to option traders.

Nifty CE8200 Jan 2015 : Source NSE

Triple Trend Oscillator (TTO) is an advanced technical  tool for brokers, fund managers, financial advisors, traders and investors  and can be used for equities, futures and options, forex and commodities.

Click here to Try TTO  and add an edge to your trading. 

Nifty Claims Mount 8900 !!

With its strong uptrend, Nifty today crossed 8900, ahead of expiry, in a move which started  on Jan 7, 2015. The strong trending move has been mapped by the TTO as seen in the following chart :

The formation of Synchronised Bullish Alignment pattern on TTO had earlier indicated that a strong move was in the offing which was pointed in our update of Jan20, 2015 when Nifty was at 8600 levels.

Sensex: The Eight Year Itch !!

Update  : Sensex went on to make a new peak "D" of 30,00 during 2015 as discussed below before starting a major correction we are witnessing now.

Indian markets have developed a cyclical pattern and have been peaking out every eighth year at least on the previous three occasions starting 1992. The BSE Sensex  has peaked out  during 1992-2000-2008 in a well established pattern of time cycle as follows :

Year              Sensex Peak
1992                 4,285
2000                 6,150
2008               21,206

A closer look at the following long term chart of the Sensex indicate similar patterns having been formed  during   the previous  occasions. The internal structure shows that during each period four intermediate  peaks (A-B-C-D) were established before the final peak, which led to the massive correction and a prolonged bear phase in the market.
 

Sensex- Monthly Chart

During  the previous occasion, the actual bull market started from 2005 after the breakout and lasted three years till 2008.The current bull phase which has started after a breakout in 2013 may continue for three years from 2014 to 2016, if the time cycle holds good this time as well. We have already achieved peaks A-B-C until now and the next peak (D)  is likely during 2015. Does this mean that the market may peak out during 2015 ??

This may be possible as markets seldom move in a linear fashion and tend to oscillate around time cycles. An up move till 2015 may be justified as the Indian economy recovers and achieves higher growth rates of 6-7%. This may lead to P/E expansion resulting in the market hitting the higher band of the historical P/E range.

Post 2016, the economy may struggle to maintain the same growth rate on a higher base and could stagnate, resulting in market cooling down till the growth rate catches up once again.  This may again repeat the eight year cycle which we have been witnessing in the past.

Nifty - Weakness Ahead ??

Nifty peaked at 8590 during Dec 2014 and has corrected since to a low of 7970 only to bounce back to 8300-8400 levels,   though the overall trend has been down. The bounce back may be considered as a retracement in a medium term downtrend or sideways market.

A look at the monthly chart and the accompanied TTO shows that the trigger line is about to cross the zero line indicating further weakness in the indices in the months ahead or a sideways market with a range of 8600-7800. Any adverse news flow is likely to accelerate the fall  with weak buying support at lower levels and FII having booked profit at higher levels.

There seems to be a light shift in the fundamentals as reality check sets in and investors adapt wait and watch approach before committing any fresh funds to Indian markets.

CNX Nifty Monthly

The weekly chart below indicates a weakening trend but no major downside as all the trend oscillators remain above zero. However the weakness is likely to persist for a few months well after the budget as the government may not announce any major policy reforms to the utter disappointment of the investors.

CNX Nifty Weekly

Blame it on Greece !!!

Greece has once again become the culprit which triggered the fall in world equity markets. This in not the first time in the last few years when Greece has been made the scapegoat to justify the fall in the stock markets.

It ironical, but true the same set of factors are responsible for the correction in the markets randomly whenever the markets required a correction. The fact remains that these  are not overnight developments and have existed all along but just been brought to the forefront whenever markets are overbought and needed a correction. Some of the factors which have been reasoned with the fall:

1.Greece default,
2. EU slowdown,
3. Chinese growth revival concerns,
4. Japanese recession,
5. US recovery,
6.  Asset bubbles (who created them) ??
7. Oil prices and many more.

These  factors have been well researched , however are sidelined when investment managers are flushed with liquidity and need to  invest in equity, but picked up selectively to justify the market fall.

The fact is, markets have their own rhythm and need to correct from time to time whether for profit booking or for attracting newer players at lower levels. Of  late almost all the major markets were extremely overbought for a long period and need a correction, which is what is happening now.

Funnily, the oil prices which was a reason for concern for the developed and developing nations have now become a cause of worry due to more than 50% correction. The US which invested billions of dollars in Shale gas to neutralize the dominance of OPEC is worried about the lower oil demand. It is entirely possible that the fall in oil prices is just technical in nature and does not reflect the demand slowdown and world recession. It is only a matter of time before the oil prices find their new equilibrium between the highs and lows of the last few years.

So wait for the correction to get over and the market pundits once again dig out some green shoots and sing in chorus !!

Rupee Heading to Previous Lows ???

 

After touching Rs.58.35 mark against USD, the Indian Rupee has been weakning as discussed in our post  USDINR Technically dated May 2, 2014  and seems to be heading to the previous lows of 66-68.The following chart from the said post indicated a reversal and move towards 68 levels.

The following daily chart indicating momentum seems to be building and once 63.80 is crossed conclusively, INR may rapidly move to 66-67 levels.