Thursday, April 30, 2009
Wednesday, April 29, 2009
Stock beta calculation measures a stock’s volatility, the degree to which its price sways and moves as related to the overall market. In other words, it can measure the risk of a particular investment and/or sector in relationship to the current market (Nifty in this case) conditions.
Here are some pointers:
Beta less than 0 - which would indicate an inverse relation to the market - is possible but highly unlikely.
Beta equal to 0 - Cash has a beta of 0. In other words, regardless of which way the market moves, the value of cash remains unchanged (ignoring inflation and stuff !).
Beta between 0 and 1 - Stocks with volatilities lower than the market have a beta of less than 1.
Beta of 1 - A beta of 1 represents the volatility of the given index used to represent the overall market, against which other stocks and their betas are measured. The S&P Nifty is such an index. If a stock has a beta of one, it will move the same amount and direction as the index. So, any stock that mirrors Nifty will have a beta close to 1.
Beta greater than 1 – This denotes highly volatile stocks. They tend to move more than the movement in Index.
And why looking at Beta might help ya?
Beta coefficient is tool which can be used for selecting momentum stock picks for momentum day trading strategies. If Beta value for stock is 1 it means that such stock will make similar moves as markets will do. If it is 2 or 3 then you can expect that such stock is making large intraday moves. It’s also a good tool when choosing stocks to balance your portfolio choosing the aggressive and the passive (safe).
And why ONLY looking at Beta might not help ya?
While Beta seems to be a good measure of risk, there are some problems with relying on beta scores alone for determining the risk of an investment.
Beta looks backward and is not predictive (remember it’s just a tool!).
Beta also doesn’t account for changes that are taking place.
Beta suggests a stock’s price volatility relative to the whole market, doesn’t predict the direction, that volatility can be upward as well as downward movement.
Saturday, April 25, 2009
An NR4 is a trading day with the narrowest daily range of the last four days. An inside day has a higher low than the previous day's low and a lower high than the previous day's high. Combining the two conditions sets up an ID/NR4 day. Crabel's initial approach suggested a day-trading strategy following this setup. In the breakout mode we can't predict the direction in which we are going to enter the trade. All we can do is predict that there should be an expansion in volatility. Therefore, we must place both a buy-stop and a sell-stop in the market at the same time. The price movement will then pull us into the trade.
Here are the rules:
1. Identify an ID/NR4.
2. The next day only, place a buy-stop one tick above and a sell-stop one tick below the
3. On entry day only, if we are filled on the buy side, enter an additional sell-stop one tick below the ID/NR4 bar. This means that if the trade is a loser, not only will we get stopped out with a loss, we will reverse and go short. (The rule is reversed if initially filled on the short side.)
4. Trail a stop to lock in accrued profits.
5. If the position is not profitable within two days and you have not been stopped out, exit the trade MOC (market on close.) Our experience has taught us that when the setup works, it is usually profitable immediately.
The above write-up is taken from the book “ Street Smarts by Raschke and Connors”
PS: If u observe the chart above, most of the NR4’s are in reality NR7’s so a more violent move???
Ok this post has got me into a lil bit of thinking and put my bookish knowledge to some analytical use. Bookish? Yeah the book I am referring to is Intermarket Analysis by John Murphy and the so is the subject of our discussion. As we are aware that U.S. Dollar Index seems to have broken down (A nice post by Corey). This means that CRB Index should move up now aka GOLD should shine and shimmer. Another thing noticeable is that 30 year U.S Treasury Bonds have fallen! So what that got to do with this? Well Bonds and Stocks have a positive relationship and both should Tango together. Falling Bond prices should also result in falling stocks means S&P 500 should fall??? Below is the chart showing all the four markets;
And this is what Murphy has to say about their relationship:
“Intermarket Technical Analysis is the study of the relationships between the four major financial markets: Stocks, Bonds, Commodities and Currencies. There are three key relationships that bind these four markets together. These relationships are:
- The INVERSE relationship between commodities and bonds
- The POSITIVE relationship between bonds and stocks
- The INVERSE relationship between the US Dollar and commodities
POSITIVE: When one goes up, the other goes up also.
INVERSE: When one goes up, the other goes down.
When these relationships occur, the markets are said to be acting "normally" and there is a good probability the current trends will continue. When one or more of these relationships break down, the markets should be watched carefully for signs of general trend reversals. “
Hmmm so do we scream BEAR? No, we just sit closely and put our new found knowledge to use and quietly follow these relationships and as always, wait for the PRICE to CONFIRM! Like my good friend Mayur keeps on repeating “TRADE THE PRICE AND NOT THE ECONOMICS”
Friday, April 24, 2009
Once upon a time on this earth, in a land far, far away,
A lone grain of wheat, amidst the grains of sand silently lay,
Then came the thunderstorms, watering the parched land
Soon afterwards a sprout from that grain of wheat was at hand.
Not one plant grew from any single grain of sand
Though multitudes amidst the soil would stand.
The lone grain of wheat grew to yield many more grains,
The multitudes of sand remained still in their numerous strains.
And so it is with Truth surrounded in a world of lies
The lone living Truth amidst falsehood multiplies.
Translation of Rumi’s work by
Below are two charts; the first one is how the various BSE Indices gained on week on week basis. As you can make out of the chart that all the Indices seem to have had a good week, barring the Consumer Durables which returned negative returns.
The chart below is the Real thing; it shows Relative Strength Comparative of various BSE Indices vis a vis broader Sensex. As can be seen that 8 out 13 are underperforming, we need more performers to fuel this rally. These charts are great tools to observe sector rotations also!
"You have brains in your head. Your feet in your shoes. You can steer yourself in any direction you choose." Dr. Seuss
Sunday, April 19, 2009
Saturday, April 18, 2009
Another week goes b(u)y; but this time the fight’s on for the 200! Shall we call it the “200 Supremacy” or the “200 Ultimatum”?
First the weekly chart below shows we have broken out of the rectangular consolidation we have been in since last October. In the process of this breakout we did also breakout of the falling Trend line drawn from the all time highs! All this has now led us to within a strikeable distance of the weekly 50 MA at 3561 which is sure to pose as a staller; even if it’s momentarily! As for the weekly supports the 3250 and 3150 look good in normal retracements.
Moving on to the Daily chart we can see that all action or should I say Reaction is at the 200 MA! It’s almost a battle; when you realize what marks a Bull or a Bear phase is generally decided on which side of the 200 you are. Interestingly for the last three days we have been meeting resistance at 3500 area and equally more interesting is the chart formation; a bearish engulfing followed by a shooting star of sorts. I have annotated the chart with the similarities in price action we have witnessed in the past. One more interesting observation is that the RSI below has broken its TL drawn from its rally start lows, will the price follow suit? Like I said earlier this parabolic rise how much ever fast it is, has left even the bulls bewildered. There are no divergences on the daily chart, and so far whatever retracements have been happening, have happened during the intraday moves! Incidentally the 23.6 and 38.2 percent retracement coincide with the top and bottom of the blue support band; I have drawn on the chart. And one more point I keep on harping about is reversion to the MEAN! We have drifted way to above the 20 MA and a meeting between the Price and the 20 is in order. Now once again this is only possible in two ways; either the Price pullbacks towards the MA or it just consolidates sideways to pull up the MA.
Ah! The intraday chart; the hourly, with the ATR almost at 150+ (5days), intraday players are let us just say “Lovin It”! This is the only chart which has been showing negative divergence. We have a crude H&S formation (or one can be content by just calling it a sort of DT considering the last two tops!). Anyway a fall from here gives minimum two targets of 50 and 150 points each. A 50 pointer drop immediately gets netted at the 50 MA and the 150 one takes us to the TL support!
"I have not failed. I've just found 10,000 ways that don't work." Thomas Edison
Monday, April 13, 2009
Sunday, April 12, 2009
I poured some water on the flour
And kneaded it with such power
And then left it for an hour.
I watched the dough rising slowly
From a place humble, lowly
To a state of fullness, holy.
Through a slow transformation
The dough grew with elation
Ready for its next vocation.
The lesson that the dough taught me
Through my process patient be
Then the outcome I shall see.
Translation of Rumi’s work by
Saturday, April 11, 2009
I am back with an example of my favorite setup; Divergence. The chart below illustrates Bullish Hidden Divergence at work. Ok I am assuming that most of you know what’s Regular Divergence and what’s Hidden Divergence. The basics can be read here in my earlier post on Divergence. And since this post is about Hidden Divergence (HD), I would like to add here that HD is actually a sort of continuation pattern. It gets you in the prevailing trend.
As you can see in the chart above, that first the price made a HH and the indicators below made a LH confirming Negative Divergence (marked in red arrows) and hinted that price is ready for a breather or a pullback of sorts. This pullback resulted into a Bullish Hidden Divergence (marked in blue dashed arrows); Price making a HL and the indicators going on to make a LL. Now if we were to go long, we had quiet a few signals which made our decision easy. We had a pullback to the 50 MA which held, we had a small DB and finally we also had a Hidden Bullish Divergence. As for the entry once the price took out the lil peak between the two bottoms (plus 20 MA also took out) we had our chance to go long with a tight stop just below the DB area. As for targets, there are different techniques; some people use measure rules and some go for Fibonacci projections and than there are some who are just content into selling into the next resistance around the corner. Follow whichever suits you; YOU KNOW YOU ARE SAFE IF YOU ARE USING SOUND MONEY MANAGEMENT!!!
Sunday, April 5, 2009
I was just reminiscing about our high school days with a few friends and that reminded me of this beautiful poem by Alfred Noyes, we had as a part of our English syllabi. After you are done with the poem, watch the song Everywhere by Fleetwood Mac based on this poem. And before you start wondering Hey what’s this got to do with trading and stuff? Well nothing it’s just that I like this poem and there are many things I would love to share with you friends, other than my insane ramblings about the market! Go ahead and enjoy, there is a life to live besides trading!!!
The wind was a torrent of darkness upon the gusty trees,
The moon was a ghostly galleon tossed upon cloudy seas,
The road was a ribbon of moonlight looping the purple moor,
And the highwayman came riding--
The highwayman came riding, up to the old inn door.
He'd a French cocked hat on his forehead, and a bunch of lace at his chin;
He'd a coat of the claret velvet, and breeches of fine doe-skin.
They fitted with never a wrinkle; his boots were up to his thigh!
And he rode with a jeweled twinkle--
His rapier hilt a-twinkle--
His pistol butts a-twinkle, under the jeweled sky.
Over the cobbles he clattered and clashed in the dark inn-yard,
He tapped with his whip on the shutters, but all was locked and barred,
He whistled a tune to the window, and who should be waiting there
But the landlord's black-eyed daughter--
Bess, the landlord's daughter--
Plaiting a dark red love-knot into her long black hair.
Dark in the dark old inn-yard a stable-wicket creaked
Where Tim, the ostler listened--his face was white and peaked--
His eyes were hollows of madness, his hair like mouldy hay,
But he loved the landlord's daughter--
The landlord's black-eyed daughter;
Dumb as a dog he listened, and he heard the robber say:
"One kiss, my bonny sweetheart; I'm after a prize tonight,
But I shall be back with the yellow gold before the morning light.
Yet if they press me sharply, and harry me through the day,
Then look for me by moonlight,
Watch for me by moonlight,
I'll come to thee by moonlight, though hell should bar the way."
He stood upright in the stirrups; he scarce could reach her hand,
But she loosened her hair in the casement! His face burnt like a brand
As the sweet black waves of perfume came tumbling o'er his breast,
Then he kissed its waves in the moonlight
(O sweet black waves in the moonlight!),
And he tugged at his reins in the moonlight, and galloped away to the west.
He did not come in the dawning; he did not come at noon.
And out of the tawny sunset, before the rise of the moon,
When the road was a gypsy's ribbon over the purple moor,
The redcoat troops came marching--
King George's men came marching, up to the old inn-door.
They said no word to the landlord; they drank his ale instead,
But they gagged his daughter and bound her to the foot of her narrow bed.
Two of them knelt at her casement, with muskets by their side;
There was Death at every window,
And Hell at one dark window,
For Bess could see, through her casement, the road that he would ride.
They had bound her up at attention, with many a sniggering jest!
They had tied a rifle beside her, with the barrel beneath her breast!
"Now keep good watch!" and they kissed her. She heard the dead man say,
"Look for me by moonlight,
Watch for me by moonlight,
I'll come to thee by moonlight, though Hell should bar the way."
She twisted her hands behind her, but all the knots held good!
She writhed her hands till her fingers were wet with sweat or blood!
They stretched and strained in the darkness, and the hours crawled by like years,
Till, on the stroke of midnight,
Cold on the stroke of midnight,
The tip of one finger touched it! The trigger at least was hers!
The tip of one finger touched it, she strove no more for the rest;
Up, she stood up at attention, with the barrel beneath her breast.
She would not risk their hearing, she would not strive again,
For the road lay bare in the moonlight,
Blank and bare in the moonlight,
And the blood in her veins, in the moonlight, throbbed to her love's refrain.
Tlot tlot, tlot tlot! Had they heard it? The horse-hooves, ringing clear;
Tlot tlot, tlot tlot, in the distance! Were they deaf that they did not hear?
Down the ribbon of moonlight, over the brow of the hill,
The highwayman came riding--
The redcoats looked to their priming! She stood up straight and still.
Tlot tlot, in the frosty silence! Tlot tlot, in the echoing night!
Nearer he came and nearer! Her face was like a light!
Her eyes grew wide for a moment, she drew one last deep breath,
Then her finger moved in the moonlight--
Her musket shattered the moonlight--
Shattered her breast in the moonlight and warned him--with her death.
He turned, he spurred to the West; he did not know who stood
Bowed, with her head o'er the casement, drenched in her own red blood!
Not till the dawn did he hear it, and his face grew grey to hear
How Bess, the landlord's daughter,
The landlord's black-eyed daughter,
Had watched for her love in the moonlight, and died in the darkness there.
Back, he spurred like a madman, shrieking a curse to the sky,
With the white road smoking behind him and his rapier brandished high!
Blood-red were his spurs in the golden noon, wine-red was his velvet coat
When they shot him down in the highway,
Down like a dog in the highway,
And he lay in his blood in the highway, with the bunch of lace at his throat.
And still on a winter's night, they say, when the wind is in the trees,
When the moon is a ghostly galleon tossed upon cloudy seas,
When the road is a gypsy's ribbon looping the purple moor,
The highwayman comes riding--
The highwayman comes riding, up to the old inn-door.
Over the cobbles he clatters and clangs in the dark inn-yard,
He taps with his whip on the shutters, but all is locked and barred,
He whistles a tune to the window, and who should be waiting there
But the landlord's black-eyed daughter--
Bess, the landlord's daughter--
Plaiting a dark red love-knot into her long black hair.
Friday, April 3, 2009
A good end to March and equally good start to April, below is the monthly chart of Nifty and we can see that we have managed to bring ourselves above the 61.8 Fib (drawn from 2003 lows to 2008 highs) and also retraced to 23.6 Fib (drawn from 2008 highs to 2008 lows). Nicely nestled between the support/resi zones shaded in the chart. The only thing that looks like providing resistance on the monthly chart is the 50% fib and 50 periods MA together at 3650!
The weekly chart below forced us to redraw the triangle; in fact the shaded area on the dashed TL gave it an impression of a downward breakout. Though the break did give a quick short but overall the pattern was a false breakout (no wonder the pundits say “triangles are notorious”). Now Nifty looks like going to test the 50 periods MA which is co incidentally at 3635!!! So 3635/3650 makes it a good resistance to watch out for.
The daily chart is as colorful as the weekly above; this is our third attempt at breaking out of the congestion shaded in yellow. The channel in green (the bull ambush!) is actually too steep for bulls comfort but anyway it has done its job. This long period of sideways consolidation had done one great thing; it has bought down the 200 period MA (3463) to a striking distance, the next logical target on the daily charts. We have a resistance at 3240/50, and with things getting excitedly overbought, a breather is needed. Any retracement from here will first test 3150 (previous high and also the gap support of yesterdays euphoric move!). This time bulls have plenty of supports (see the hourly chart below) on the downside like 3100/3050/3000 and finally the famous 2950!
Speaking of supports, nothing is much better than the hourly chart below to display them. First I have shaded in blue (had to make the chart colorful!) all those sweet little water bodies a.k.a GAPS. These can be unfulfilled fantasies of Bears or can turn into nightmares of Bulls. Dumb as I am, I finally gave up identifying these gaps as Breakaway/Runaway or Exhaustion gaps, so taking the creative liberty let’s just call em BEARAWAY gaps!!! No idea which will be filled or won’t be filled but each one will be a delight to watch. Like said earlier it would be a game of Dragons and Dungeons. As mentioned earlier, things are looking overbought (and price too is overextended from the MA’s) and retracements mentioned above are likely to happen.
"The worst part of success is to try to find someone who is happy for you." Bette Midler