Technicals for week ending – 9th March 2018.

Note : This is not a recommendation and I am not a registered analyst, these are just data points and an assesment of the positives and negatives from a longer term point of view.

Nifty Weekly

Continuing with the bearish theme I wrote about last month the past few weeks have seen further damage in broader and sector indices. Considering the data post the 2008 crisis, similar themes are emerging which leads one to believe that 2018 has a high probability of playing out like 2011, 2013 & 2015. I repeat again, this is just a probability thing and keeping in mind the evidence. As for me, I continue to stick to my simple weekly & monthly models and yes, it is testing my patience.

All charts are posted below the write up.

In the first chart the damage is evident with majority of sector and broader Indices trading below their 40 week moving average. Moving on to chart two, this measure the average and median distance of the sector Indices from their highest 52 week close, the readings stand at -10.4% & -11% respectively. Finally, in charts 3 & 4 one can see that day to day & Intraday volatility has picked up as we are now seeing more days with a more than 1% gain or loss and are also witnessing more days with a 1% swing from Intraday high to low in the Nifty. Seeing these charts in relation to one another suggests a similar environment to 2011, 2013 & 2015 – majority of Indices trading below their 40 week moving average, average decline from 52 week highs in double digits and uptick in day to day and intraday volatility.

Moving on to client positioning in the derivatives space, the client category is net long in index futures and the long puts to long calls ratio is at 0.92 suggesting that clients hold more long calls than puts. This shows a clear bullish bias in the index derivatives space and historically when clients are this long the next few weeks have seen higher volatility and a bearish bias in Nifty. I have also put in the historical positioning going back to 2012 and it is in percentage terms i.e. the net long contracts are represented as a percentage of total index futures open interest. Though there are few instances since 2012 but it is evident that when clients go net long in index futures the following days have seen a negative Nifty. Lastly, the Nifty has seen 6 red weekly bars so there could be some short term respite within the next 2-3 weeks or maybe it’s the gamblers fallacy 😊