NIFTY – 20170415

What has the Nifty done?

Long-Term: Nothing much. We were and are at 91xx 25 months apart. 

Medium Term: September 2016 High was 8968 and today we’re at 9150. Again. Nothing much!!

Short Term: The move has been very sluggish (almost a grind-up) since Nifty made a high, after the budget. 

20170415_02

Anyways, my biases and inclinations aside.

Let’s look at the data

Today, I’m going to look at the Nifty and the VIX. So, here go some simple observations

  • Since the August 2013 (FDI in Retail bottom … IIRC), Nifty has spent a bunch of time above the 20 Weekly SMA (approx. 125 weeks) and some time below the 20 Weekly SMA (approx. 65 weeks). Right now, the 20WSMA is @ 8672. 

    Why the distinction? Primarily because, during this period,

    • When the Nifty is > 20WSMA, the corrections (or red candles on the weekly charts, as I prefer to look) have been limited to 3 weeks except for one instance. Also, as would make sense, the “corrections” are much less severe i.e. 5.8%, 5.5%, 7.7%, 3.9% and 4.6%.
    • When the Nifty is < 20WSMA, the falls (or red candles again) tend to last up-to 4 weeks and of-course, the falls are of higher magnitude i.e.  9.3%, 9.5%, 6.5%, 12.55%, 7.3%, 9.2%, 10.2% and 9.4%. 

Now Let’s come back to the current picture

  • NIFTY corrections above the 20WSMA tend to last, mostly, 3 weeks and the Nifty is already 2 weeks in this correction. (I count red candles as corrections / falls). The maximum back-to-back negative weeks have been 4 in one instance in Sept. / Oct. 2014.
  • During this period, a 4 week correction has ALWAYS tested or ended below the 20WSMA. Currently, the average stands @ 8672.
  • The current correction is 1.4%!!!! i.e. waaay lower than any previous correction, in this period, with Nifty above 20WSMA. This “correction” has been surprising in the fact of how little the NIFTY has fallen so far; two weeks into a correction.

What does this all mean?

  • Maybe we can say the greater the consolidation, the lesser the correction?
    • In both the post-Modi up-moves there were two instances of 9 weeks (June – August 2014) and 7 Weeks (July – August 2016) when the Nifty, practically, did nothing for close to two months. (Refer the chart below)
    • Nifty is 7 weeks into some sort of consolidation now.

20170415_03.JPG

So, are we in a one of these “go-nowhere” consolidations?

  • The VIX seems to think so. The last time, VIX was consistently below 15 for a substantial period of time was between August – November 2014. That aligns with the 9-week period of consolidation. 
  • Why is the VIX important in this context? Because, IndiaVIX has quietly, created history
    • The lowest high the VIX has made EVER in a month since it’s inception, was September 2014 – 14.83 (ring a bell!!!!) and March 2017 – 14.72. Current month high is ~12.75!!!!!!!
    • if IndiaVIX doesn’t hit 15 in April: This will be first instance in VIX history that it won’t have hit 15 for two consecutive months!! I mean, what does the VIX need to rise? Trump is threatening to go to war with Syria and North Korea!!
    •  Thanks to the budget in February; This is the first instance where the VIX has fallen below 12 in the months of March & April.

So, what is the conclusion?

  • There are, probably, 1-2 more weeks left of red candles on the Weekly Charts. If during this correction, Nifty falls below 8672; then the alarm bells should ring. 
  • In all the instances of correction above the 20WSMA, Nifty made a significantly new high AFTER that 3/4 week correction.

 

I am reachable on twitter @jdsfinance.

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