Are we heading down soon?

Attached are 3 month daily chart of the 2 primary indices.



While Sensex did follow-through on 26th Nov, nifty (^NSEI) hasnt. And there are already 2-3 distribution days. There is no leadership either.
Also, I am counting day 1 of rally as Nov 21, although we didnt make a new low since Oct 27 - reason is we had 7 continuous down days and we had a new lower close in sensex, though not a lower low.
Some days - like today - NSEI ended marginally in red, while SENSEX ended marginally in green - but I am counting in both the indices this as a distribution day - since volume was much higher, so it seems to be more of churning going on.

Only 31 stocks (including 3 GOLD ETFs) out of 1300 stocks on NSE exchange satisfy the following property:

• They have relaive strength (calculated over the last 1 month *AND* over the last 6 months above 80.
• They closed above 50 day SMA. (In most of these cases, 150 / 200 SMA is above 50 SMA and in most cases, these SMA are moving downwards.)

Only yesterday 298 scripts out of 1230 scripts traded on NSE (24%) made a new 52-week low while only 1 made a new high. Today 166 scripts (13.5%) made new year lows, while 2 made a new high.

I am computing Marty Zweig indicator tool too (whether avg of advancing stocks ratio and up_volume is above 90% or below 10%).
Since October 1st, this number was below 10 on 4 occasions: 3.005 on 6th Oct, 6.23 on 10th Oct, 8.55 on 15th oct followed by 3.26 on 24th oct.
The only 90+ day was the shortened trading day of Diwali 28th Oct (trading was on for only 1 hour that day, so I am not counting that.)

Infact, we have NOT had a single >90 or <10>This will change at some point - I think it will change in the next 5-7 days and I think that would be on the downside since we have no leadership and no accumulation days. Distribution days however are adding on.

Meanwhile, US has logged on a weak-ish follow-through-day. Lets hope no distribution day shows up today or in the next week. Also note that the FTD in US came right after a 9% down day - and the volume was only 6-10% higher than previous day.

-Sumeet

US in recession for a year already!

Ya, as I had said to some of you in my private talks - that we will soon hear - after US elections - that USA has been in recession for a year. And now that information is officially out. Politics!!

On the same note - now that Chidamabaram is out of Finance Ministry in India, we may soon hear some revalations here too. Or we may have to wait all the way until a new government.

-SS

We had a weak follow through day and now a distribution day on Sensex

Sorry for not being regular and not updating the site for the past few months. Was caught on the wrong side in the July rally, but have made very good amends since then and I am now almost up YTD from April now (its really tough to be counting exactly!).
Anyways, back to my take on markets:
I didnt have a really strong view for the last 10-15 days. We overdid the rally from October lows by bouncing as much as 40%+ in 5-6 days on not so great volume. So, at that point, it was tempting everyone to short and then we overdid on the down side by falling for 7 days continuously. So, we have been range-bound for most of November.
Back to december, I still dont have a very clear view, but I will state some of my observations.
The original rally started from Oct 28. It gave a follow through day (FTD) on Nov 4th. The sad thing was a distribution day immediately followed the FTD and so the rally immediately became weak. Besides that, it had already come up 40%+ in 5-6 days.
On 14th november, the 3rd distribution day on nifty, i counted the market rally as over. Since then, we have neither gone up much nor down much.
A new rally started from 21st Nov. (Note that we didnt really break the previous Oct lows and so some people may say that the previous rally from Oct is still on.) It has NOT YET given a FTD day. Counting the 1st day and until now, we have had 1 accumulation and 1 distribution day - clearly no trend whatsoever on low volumes.
On the Sensex however, we have had 1 FTD on 26 Nov 08 and so that makes it 2 accumulation days (including FTD) and 1 distribution day. However, the FTD only had 7% more volume than previous day.

This rally looks more likely to fail than succeed - but a clear direction can appear only on breaking 2500 on closing basis and in that case, there is a STRONG chance of going to my final targets for the indian markets - 1800-2000 range on NIFTY.

Few stocks have meanwhile looked strong, but not too strong yet: NTPC is one of them.
I have reshorted all original shorts about 10 days back and they are giving me minor profits at this time - we probably will have another 1-3 distribution days before we break 2500.

Based on analysis of previous bear markets, I believe we will make it to 3500-3700 range atleast once (maybe twice) in the next year (2009). But, we will not cross 3700-3730 in 2009, no matter what. Ofcourse the market view is so bearish that not a single person agrees with me that we will goto 3700.

DONT GO LONG yet. Market is too weak right now.

Mutual Funds: I reviewed many of them and they are all very well placed. High cash levels. Stay invested in the good funds. Continue SIP. In addition, I am planning to buy a bit extra below 2500 nifty (only mutual funds), and then average down with higher amounts to invest until 1600.

Futures: I hope to go long in nifty futures from 2000 and average down (pyramid) until 1600 (no SL) and will then hold for 3500-3700. Very risky, and it is indeed going to be very rewarding if it works.