Sector Momentum Model update

Updating our momentum model for the week ending 27^th July 2015.

I first wrote about this model here Sector Technical Analysis: Sector Momentum Model

Nifty up closes for 8 and 10 consecutive days

Sector Technicals for the week ending – 19th July 2015.

Nifty Weekly Technical Analysis:

The Nifty managed to close well above prior resistance of 8500 and now is just a tad bit under its December’14 highs. The setup seems to be bullish at the moment since we have breakouts on the CNX Mid and small cap indices as well. On the Nifty, some basic indicators that I like and follow are showing a bullish reading too. Weekly close>40 week MA, MACD buy signal, MACD>0 and RSI>50 have been good indications of a longer term uptrend in the past. Will it repeat this time? Only time will tell J . On the derivatives side, there has been massive put writing during the entire week pushing the VIX below 15%- indicative of a positive bias. FII’s are positioned bullishly at the moment with a week on week increase long index futures as well as call options.

Weekly charts :

Sector Technicals:

CNX Midcap and Smallcap: Both indices broke past their resistance zones and on the technical parameters mentioned above, seem to be well placed for a further uptrend. The uptrending RS lines of these indices suggest no panic/selling at the moment, usually the RS lines of mid and small cap move down in bear markets.

Sector Momentum Model update

Updating our momentum model for the week ending 19^th July 2015.

I first wrote about this model here Sector Technical Analysis: Sector Momentum Model

Sector Technicals for the week ending – 12th July 2015.

Nifty Weekly Technical Analysis:

Been a while since I wrote the weekly but last time I wrote “for a longer term move higher would like to see prices sustain above 8500 and some improvement in MACD and RSI indicators.” OK, so far this played out well as 8500 did act like a big resistance. Seeing the last week’s candle on the weekly charts, looks like the sellers totally dominated. On the indicators front, MACD<0 and still in sell mode BUT improving. RSI just a tad above 50. So, combining all this, the conclusion still remains the same as before. For a longer term uptrend need price sustaining above 8500, MACD>0 and RSI staying above 50 for a bit. India VIX is at 17% which still indicating that the options market is pricing in higher volatility ahead and FII’s though net long have reduced net long position over the week.

Weekly charts :

Sector Technicals:

CNX Midcap and Smallcap: Technically both indices are just at their resistance levels, if they manage to sustain above resistance, this could be positive for the market overall and Nifty. For the coming weeks price action in these 2 indices should be watched carefully

Sector Momentum Model : Weekly update

Updating our momentum model for the week ending 12^th July 2015.

I first wrote about this model here Sector Technical Analysis: Sector Momentum Model

Nifty & Earnings

I have often heard and read statements such as “markets have gone ahead of fundamentals”, “the market has run ahead of earnings”, “earnings have yet to catch up” etc. but could not find/understand any statements that put it in numbers. This write up is an attempt to quantify Nifty growth vs its earnings growth and see if we can identify periods of excessive over optimism and pessimism. Please understand that this is not a holy grail and is just an attempt/idea and maybe a different angle to look from with respect to earnings

(Click charts to enlarge)

Chart 1

Data and Methodology:

All data is sourced from NSE. On chart 1, the left side represents the Nifty and its Earnings rebased/indexed to 100 since 1^st Jan’99. On the right side we have the spread of these indexed numbers expressed as a % of the indexed earnings to see if there is over optimism or pessimism in the price with respect to earnings. Calculation as per the below :

I am taking 1^st Jan’99 as the starting date and basing that to 100 for the Nifty and its Earnings value. 

Earnings = Nifty/PE ratio

On 3^rd July the Nifty closed at 8484.9 which is 9.525 times the value of 890.8 (1^st Jan’99) closing, hence on an indexed/rebased to 100 level the Nifty Indexed number comes to 952.5. Same methodology to calculate Earnings Indexed.

The last column, Indexed spread is calculated as (Nifty Indexed – Earnings Indexed)/ Earnings Indexed. i.e. (952.5-470.58)/470.58 and expressed as % terms.

Observations:

From chart 1 we can see that the indexed spread i.e. the red line above 100% is a sort of danger zone and readings above 120% have led to disastrous returns from that point on. As for bottoms, indexed spread readings in the 0-20% zone have been major bottom’s in markets. Unfortunately there is not much data history to see this across many cycles but I believe if you combine the above chart with a chart of basic P/E ratio and its standard deviation bands (chart 2 below) one can get a sense or double confirmation of an overheated market.

Currently the spread is at 102% and going by the above study and past instances, the returns have been meagre on a longer term timeframe when the spread is at or above 100%. But yeah the PE ratio has not yet hits its +2 SD band…

Chart 2