Nifty PE crosses 24|A statistically informed entry-exit model!

(Amit Jain) #669

A break in long held VIX trendline indicates important changes in the underlying volatility (dynamics of either buying or selling), and hence often foretells change in price trends as well.

(Billu) #670

How does one play volatility. India VIX futures are not traded and options are not liquid for farther month for most stocks.

(PavanM) #671

You would want to construct (or buy directly) a straddle; premium will be high as they are usually struck ATM.
For lesser premiums you want a strangle. They are struck slightly on either side of ATMs.

However, in India, (I feel), there are not enough long dated index options - going beyond 2 months. With time decay as a factor in options market, buying such instruments turns out to be a gamble.

‘I think within the next month or two Index will fall’ or ‘if the govt wins the ensuing state election markets will rise, but if they drew or did not win, the downside is high’ turn out to be guess work.

Ideally an years worth of liquid options is a good buy; long dated options could be used as a hedge - as their premiums will be less. Long dated OTM options are ideal because they ‘fly’ the most; a good example is a bird; its body or central axis can be thought of as ATM options. When it flaps its wings, the points on the wings, on either side of the body will go up (and down) lesser compared to the tip of the wings which are furthest. With options (Long) the down side is limited hence those OTM options fly.

However, mine is bookish knowledge, I would stand illuminated if there are practitioners in this forum who have found unique ways to overcome this limitation of time and high premium in the Indian context.

(Bheeshma Sanghani) #672

Continuing with the chart posted above shows that a down channel is in place. The prices have rebounded but are moving symmetrically within the channel - with bounces of the 38.2 & 50 levels. It will be interesting to see what happens next. As of now it does seem that a reactionary downtrend is in progress with a lower high and lower low within a channel. If the channel holds - then prices should go all the way down to 10k roughly, which is the 61.8% fib level.

(arvind.calyx) #673

Seems like Nifty is in Downtrend… I think it will go till 9000 levels… Shorted Nifty futures at sharp 9:30am today :slight_smile:

(Dragon) #674

I feel you should wait for close below today’s low and also the volume confirmation is required.I haven’t checked today’s volume…

Having said that if BJP wins big then that flag is going to be null and void…

(arvind.calyx) #675

Well It seems the market has changed trend… And if market has actually changed the trend then election results might give a day or two days rally but it won’t change the trend.

(pkk123) #676

How did you calculate 9000 target?

(Bheeshma Sanghani) #677

It’s a bit premature to call for a change in the broad trend looking at the daily. If there is a series of lower highs and lower lows on the weekly with diminishing volume on the highs then you would have a decent bear case at a technical level. 18-12 which is the date when the guj election results are due - expectations will be reset. Up or down remains to seen as of now and either ways it should not impact the basic investment process of finding quality businesses at sober valuations.

The 10k level is the big one that needs to be tested properly. So far it has not been properly tested by the market and the guj elections provide a good opportunity for participants in the market place to have a go to see whether it is a sound one. Unless that test happens the market will remain weak in my view.

(J2EE Professional) #678

lower low on weekly charts is still not formed and wont happen till we have alteast 2 days closing below 9680 approx. Also, given that it also coincides with 200 ema, it will be strongly defended by the bulls. so the trend remains intact as of now.

(Bheeshma Sanghani) #679

True. That’s why a test of 10k looks imminent and an outcome on that should provide clues on the general market direction.

([email protected]) #680

Market sensing uncertainty in Gujarat election outcome …causing lower high and lower low in daily chart.sense of confirmation will be represented well in daily and weekly chart…

(arvind.calyx) #681

It looks in downtrend on weekly chart as well. If it gives a closing below 10122 in this week then it would be confirmation on weekly chart as well.
Lets see what future holds ahead. A correction of 8-10% would be healthy for the market.

(J2EE Professional) #682

actually, the way you are representing is different. If something is there in daily charts, it would be there in weekly and possibly in monthly charts as well (as well as hourly charts). This is a channel that you are talking about. What I am talking about is a downtrend in terms of lower highs and lower lows and on weekly charts. That is different from channel. I hope it clarifies things.

(arvind.calyx) #683

I did not get what you are saying… It would be better if you could explain in term of numbers or chart.
Would like to see things from your angle as well.

(Amit Jain) #684


Technical Analysis should be carried on in the respective thread. Will attract more informed participation.

(manivannan.g) #685

Just read that the exit polls favours BJP. So, time for some optimism. Even if it turns out to be a negative, a great opportunity for buy.

(Amit Jain) #686

Gujarat Exit Polls were placing BJP at 115 seats. But, fell seriously short, that too on home ground. This gives us a fair view of what may happen in other states.

When markets are expensive, price becomes much more sensitive to bad news. There is already a inherent, natural, momentum for the prices to go back to the mean, and if coupled with a bad news, market simply dives for the mean.

It won’t be anything extraordinary for us to see Nifty at PE 17 as it remains there 75% of all trading days. That would bring it to the level of 6500 to 7500 in the near future.

(Dragon) #687

Most of them talking about price coming down but why are you not considering earnings going up and maintaining PE ratio around 17?

As we know earnings are cyclical and they can pick up any time and bring the much inflated (??) PE ratio down.

(Mandbudhijaat) #688

Interesting. Did you consider Earnings may go up as well? I don’t see even remotely that Nifty can go to 6500 @ current economic scenario