Monday, September 22, 2014

Open Interest and Volume Relation

Here are some general guidelines on how the interaction of price and volume/open interest might affect value:

  • if both parties to the trade are initiating a new position ( one new buyer and one new seller), open interest will increase by one contract. 
  • If both traders are closing an existing or old position ( one old buyer and one old seller) open interest will decline by one contract. 
  • The third and final possibility is one old trader passing off his position to a new trader ( one old buyer sells to one new buyer). In this case the open interest will not change. 
  • By monitoring the changes in the open interest figures at the end of each trading day, some conclusions about the days activity can be drawn.
  •  Increasing open interest means that new money is flowing into the marketplace. The result will be that the present trend ( up, down or sideways) will continue. 
  • Declining open interest means that the market is liquidating and implies that the prevailing price trend is coming to an end.
  •  A knowledge of open interest can prove useful toward the end of major market moves. 
  • A levelling off of steadily increasing open interest following a sustained price advance is often an early warning of the end to an uptrending or bull market.
  • Price up, volume up, open interest up - bullish as it indicates traders still want to buy despite the higher price.
  • Price down, volume up, open interest up - bearish as increasing volume is driving the market lower.
  • Price up, volume down, open interest down - reduced buying interest and a possible market top.
  • Price down, volume down, open interest down - decreased selling interest at lower prices, indicating a bottom may be in place.

Open Interest
Market is Strong
Market is Weakening
Market is Weak
Market is Strengthening

Thursday, August 7, 2014

I am back from long break

Its been long time since a posted on this blog and happy that am blogging again.
Now that am back i am still thinking on what to start with.
As of now nothing seems to be coming to my mind. but am happy that i posted this blog and hope very soon i will blog here to update my knowledge and also readers knowledge :)  if at all any readers to my blog

Monday, October 15, 2012

A new forward Indicator to predict Nifty

A new indicator was developed by Nomura team called Nomura Economic Surprise Index for India (NESII) to predict the market direction using economic variables like GDP,IIP,PMI,WPI(inflation). Everyone knows that announcement of GDP , Index of Industrial Production , Purchasing managers index and Inflation will swing the market in either direction. Quants from nomura developed this "tactical tool" which can be used to predict the direction of market. 

NESII is a weekly index and has shown a strong correlation with India's financial markets and can be used to confirm the price movement.

It shows NESII and NESII 3-month moving average. If NESII goes over zero, then it could be taken as a sign of turning point and turning point which could lead the market to new highs.

How effective is this tool, only time will tell as this is no more part of Asymmetric information to market participants.

In the above pdf they have said that the index is available on Bloomberg with the ticker . I could not find any as of today, do let me know if any of you find

Monday, January 2, 2012

Paralyzed 2011 Market, Will it get worse in 2012?

What is in everyone's mind on the stock market in 2012?. There are many interesting things coming in 2012 like assembly elections in few states that includes Gateway to Delhi, growth rates decreasing in emerging countries, the Euro issue, FCCB on indian companies, NPA's of Banks. Before we go ahead into 2012 lets look at how markets performed in 2011. The below chart compares Nifty with CNX Infra and CNX Realty Index. These two were the worst performing sectors of last year with infra down by 37% and Realty down by 50%.
In the Infra sector: GMR infra was down by 52%, Suzlon was down by 65%, Voltas was down by 65%, Lanco Infra was down 85%, SCI was down by 63%, RelInfra was down by 58%, Rpower was down by 54%, Punjlloyd was down by 63%.

In the Realty Sector: we have couple of stocks which got embroiled in 2G scam that got hit badly, like the  DB Realt,a new entrant down by 74% and Unitech was down by 70%. Apart from these HDIL was down by 72% and DLF down by 36%.

In the below chart Nifty is compared with BANK Nifty that went 31% down and the PSU Bank went 40% down

Clearly,the only winner of 2011 was the FMCG sector,which was up by nearly 10%
Major contributors were HUL that went up by 33%, ITC up by 15%, Marico up by 20%, Jubliant Foods up by 20% and on the other side McDowell was down by 68%  due to the effect of Kingfisher Airlines that almost went bankrupt.

And the possible reasons for markets tanking down in 2011 are:

  • Government Paralysis
  • Loss of confidence among the FIIs that led to currency depreciation
  • Interest Rate hikes by RBI to contain Inflation
  • Euro Crisis and near recession scenario
  • Rise of NPA among Banks
  • Fiscal Deficit

It will be very challenging for few companies in 2012 to rise money to fund ongoing projects. One issue which will haunt many a companies is the FCCB redemption. Some companies have FCCB maturity in first half of the year and their Stock Prices are currently trading at 80-90 % down the conversion price. Such bond investors will not convert there bonds to stock and therefore companies would have to repay the debt in foreign currency.As Rupee is depreciated by about 15%, this makes the redemption payment for companies even more tough.
Examples : SUBEX,SUZLON,RCOM etc..

Also, the recent announcement by Govt. about borrowing plan to overshoot by another 40,000 Cr will make matters worse in coming days. I am guessing it will touch new lows in 2012 but will end up in positive by the year end. Lets see how markets open in the first day of new year tomorrow...

Sunday, October 30, 2011

Inflation Rate Projection by RBI

Here is the inflation chart taken from RBI website and RBI is Projecting a baseline WPI for 2012 at 7%

Am not sure how they are going to bring this to medium term objective of 3% consistent with india's integration into the global economy.

At least from the past two years RBI has failed in containing the inflation and there inflation targeting is a failure as they didn't contain it.

Lets see if at least they can manage atleast 7% for this year coming from a very high base rate of last year

Comments :

Revisiting this post in october 2012 and inflation crosses the upper band as projected by RBI. It looks like RBI utterly failed at controlling the inflation in 2012 also. Shame on them