Sector Momentum Model - Weekly update

Updating our momentum model for the week ending 31st May 2015.

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

Sector Technicals for the week ending – 31st May 2015.

Nifty Weekly Technical Analysis:

The benchmark Nifty index held up well last week thanks to a Friday surge. The index is still above the 40 week MA with a positive crossover of 10 and 40 week MA’s – so intermediate term trend remains positive. The next logical resistance zone now seems to be in the 8550-8600 area as that’s where the resistance and the upward sloping trend-lines meet. The 14 period RSI is holding above 50 and the MACD histogram has improved, both positive signs. The VIX also cooled off to 16.65% and FII’s are still net buyers in index futures (another positive).

Weekly charts :

Sector Momentum Model - Weekly update

Updating our momentum model for the week ending 24th May 2015.

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

Sector Technicals for the week ending – 24th May 2015.

Nifty Weekly Technical Analysis:

The benchmark Nifty index gained more than 2% last week. The index is now back above the 40 week MA and the support zone around 8180 levels held quite well on a weekly closing basis. This zone was defended successfully over the last 3-4 weeks – maybe this is now a short to intermediate term bottom. The next logical resistance zone now seems to be in the 8600 zone as that’s where
the resistance and the upward sloping trendlines meet. The 14 period RSI has closed above 50 which is a good sign. The VIX, which was pretty sticky around 20% levels has cooled off to just below 17% while FII’s have turned net buyers in the index futures as well as call options space – Both suggesting a positive outlook.

Weekly charts :

Sector Momentum Model

The above strategy is a sector momentum model which buys the strongest sectors as measured by their weekly returns over a certain look back period and also that are only above the 40 week moving average. So in this way we are trying to identify sectors that are showing momentum and are also in uptrends as defined by the moving average.

Top 1 means we are invested in only 1 sector index which is given a rank of 1 and Top 2 means we are invested in the top 2 ranked sectors. Example, as of 15 May 2015 Pharma and Auto indices were ranked 1 and 2 so the Top 1 portfolio will buy into Pharma only while the top 2 portfolio will buy into Pharma and Auto indices.

The indices considered for this model are :

CNX Auto

CNX Bank

CNX Energy

CNX FMCG

CNX Infrastructure

CNX IT

CNX Media

CNX Metal

CNX Pharma

CNX Realty

The price only returns of both portfolios have managed to beat the Nifty index on a price and total returns basis and also have a much lesser drawdown than the Nifty. Yes there will be periods where the portfolios would lag Nifty returns on a shorter timeframe but on a long term basis I believe they would perform well given the trend following filter that we have applied, and one cannot rule out the benefits of a mechanical strategy over the long term. 

Thanks for reading :) 

Sector Technicals for the week ending – 10th May 2015.

Nifty Weekly Technical Analysis:

The Nifty closed the week right near its long term supports of 8180-8200 zones. However the index is below its 40 week moving average and as per my rules I am in exit mode. Price action wise, I would say the longer term trend would turn negative if we close the week below the support of 8180. On the technical front the MACD histogram registered its highest negative reading in 3 years while the RSI is also below 50 after more than a year. Also, the India VIX at 19% suggests a bit of volatility ahead. The factors mentioned suggest that the coming weeks would resolve to the downside but let the price action confirm if the week closes below 8180. As per the rules, I am out as the index is below its 40 week moving average.  On the flows front, FII’s have reduced net longs drastically and have increased positions in put options.