The Simple strategy…

The Simple strategy…

The above strategy uses just 2 funds. The HDFC Nifty index fund and the HDFC Gilt Long term fund – both are growth options i.e. dividends are reinvested.

Rules:

• ·         Buy index fund if monthly close above 10 month moving average (MA)
• ·     Sell index fund if monthly close below 10 month MA and invest proceeds in gilt fund if gilt fund above its 10 month MA for the month.
• ·         In cash if both below 10 month MA

The strategy has performed well over the last 10+ years outperforming a buy-hold and hope approach. Though we don’t have a lot of data history, but it’s a good strategy to have in ones arsenal. The system has lesser volatility and drawdowns compared to a simple buy and hold mainly due to the trend following element of using a 10 month MA. The main point that I love – only 12 decisions a year – only have to look at this once a month. J

For further reading, there is a tonne of research and data available at mebfaber.com regarding the use of a 10 month moving average in building portfolios.

Keep it simple, thanks for reading J

Sector Technicals for the week ending – 21st June 2015.

Nifty Weekly Technical Analysis:

The Nifty gained 3% last week and managed to close the week above its resistance line. However, on a longer term basis I am still a negative for the moment as we are below the 40 week MA, the index will have to clear 8500 – which is the preceding highs of May. The MACD is still in sell mode and below its 0 line and the 14 week RSI is below 50 (not been a good combination in the past). Hence, for a longer term move higher would like to see prices sustain above 8500 and some improvement in MACD and RSI indicators. On the derivatives side, FII’s are net short in index futures. The only comforting sign is that the VIX has declined to around 15% from near 20% levels – so the options market is pricing in less volatility ahead for the near term.

Weekly charts :

Sector Technicals:

CNX Midcap and Smallcap: Technically both indices might see some more selling pressure/ moderate returns due to the combination of a sell trigger on the MACD and RSI below 50. Small caps look more vulnerable at this point for a sell off as they are below their 40 week MA. Would be prudent to increase longs only above the resistance bands and if we get a weekly buy trigger from the MACD.

CNX Auto: MACD = sell, RSI <50, Auto index < its 40 week moving average – these 3 are not pointing out to a positive outlook for the coming few weeks despite the bounce back from supports. Better to take longs only if we can sustain a few weeks above this support and see some improvement on the MACD and RSI indicators.

 

Bank Nifty: Banking index did not participate much in last weeks rally, technically the picture is same as the Auto index as per the indicators. Price action wise we are just at supports, so yes there can be a bounce back for a day or 2 but on a weekly timeframe things look negative/moderate returns. 

CNX Pharma: As mentioned before, the 13000 level holds the key for a sustained uptrend, better to reduce longs or wait to increase long exposure for some time till we get 2 weeks of continuous closing above the 13000 mark. RSI is below 50 after a long time and once we lose support things would get ugly.

CNX FMCG: Still not a pretty picture for the FMCG index as it is below the 40 week MA. The index lost support of 20000. Better to wait and watch. Looks likely that this space is going to be range-bound for the near term. Longer term the picture looks negative as the MACD line is negative and also in sell mode along with a RSI <50. This combination is a serious negative.

CNX IT: The IT space also did not participate much in the rally last week, gaining only 1% odd. Short term supports seem to be in at 10900 – which has held well over last few weeks. Longer term, would like to see the index move above its 40 week MA and also see an improvement in RSI and MACD before taking longs.

CNX Infra, Metal, Energy & Realty: As mentioned last week Infra looked the best from the long side but still better to wait or use less exposure. Better to wait for the Energy space to clear overhead resistance and a positive crossover of the 10 and 40 week MA’s. Expect Metals and Realty to underperform.  

 

The below table is just a scan that I run to check the overall trend of an index and its performance vs. the benchmark Nifty. For more information on relative strength please click on the Relative Strength section above.

Sector Momentum Model weekly update

Updating our momentum model for the week ending 21^st June 2015.

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

Trading Journal

Taking a break from the normal weekly write up, this post is more about live trades. I started following a mechanical approach around the end of 2013 and since then it’s paid of J (took more than a year reading, testing and finding a method that suits me). The above chart is of the Nifty index and the green part is when it’s a buy signal and the red part is the periods when I should be in exit mode. I use the Nifty ETF to trade this. i.e. it tracks the Nifty index returns. My main objective was to avoid predicting (frankly no one can predict consistently. Period) and try and keep losses as low as possible. This system suits me; it’s a weekly chart so avoids the day to day noise. Just have to wait patiently for every Friday to get the signal.

It’s no holy grail; it’s not going to mint money day in and day out. But hey ! I am under 30 and have a long investment horizon which means – I need a plan.

It has been very difficult to not read too much into the news - Greece, Current account deficit, Eurozone, Fed rate hike, BJP, Congress, Elections etc. etc. and the list goes on and on. As Life goes on so too does the market. The main battle was to keep the emotions at bay..fear..greed. Every time one has to remind himself to wait for the signal, not to pre-empt it.

Key learnings 

• Know yourself (what will you do if the stock drops 10% tomm. ?, are you comfortable with a plan or you want to trade the “news”)
• Know which product you are comfortable with. (Equities, MF’s, Futures, Options, ETF’s, Warrants, Structured products)
• Discipline – easy to say, most difficult to implement
• Patience
• “read” the news BUT “trade” on the signal
• Know your goal, mine is to generate decent positive returns over a long term but with as little of drawdowns/ losses as possible.

Sector Momentum Model : Update for 14th June

Updating our momentum model for the week ending 14th June 2015.

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

Sector Momentum Model - Weekly update

Updating our momentum model for the week ending 7th June 2015.

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

Sector Technicals for the week ending – 7th June 2015.

Nifty Weekly Technical Analysis:

The Nifty lost close to 4% last week. That too after a rate cut – going down on good news – Mr. Market is telling us something here. Last week’s bullish data points have completely changed to bearish mode. We have closed beneath an important support zone of 8180. The last few times this zone held well (blue arrows). BUT this time it’s a big red candle with no lower shadows, looks like price action is signalling that the downtrend has some more legs to go. There can be some back and forth around this area but looks like 8500-8600 has established itself as the medium to long term resistance. Nifty has closed below 40 week MA, the MACD line is close to 0 and in the past, returns below 0 reading have been volatile and mostly negative. The RSI is below 50 and combined with MACD it is not a pretty picture. FII derivatives data for 5^th is not available but going by the data for 4^th they have reduced net longs by a significant amount. Looks like it’s better to wait on the side-lines or switch to bonds.

Weekly charts :