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| With the markets having hit some rough weather, they are all looking for the forecaster from Medugorje. Well! I am not the one and neither have I met her, but I am sure we all need her at this juncture when we have a host of indicators pointing in various directions.
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| The foremost is the 'price' of the Nifty, which has seen an intra day price movement of 19 points in May-July 2003 to jump about 36 points in September-November 2003.
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| Such increasing volatility was accompanied by a range-bound movement. The Nifty was in the 1500-1600 levels for more than a month and touched the 1560 levels 11 times in 28 trading days. The index moved below the 1560 levels last week and ended the week around the 1,550 level.
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| On the volumes front, the Nifty futures average trading volumes for the month were trading below the 50-day average at around 80,000 contracts. The November average is also lower than the average volumes for October at 83,000 contracts.
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| The average monthly Nifty futures volumes at the 50-day moving average (DMA) level are about 40 per cent lower than the historically high Nifty futures volumes of 1,25,000 contracts traded on September 19, 2003.
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| A similar volume pattern was witnessed in many other heavyweights viz. Infosys, Telco, Tisco, Reliance, SBI, etc. last week. Average volumes in November for Infosys were ruling 20 per cent lower than its 50 DMA trading volumes at 5,800 contracts. Reliance futures volumes were about 5 per cent lower than the 50 DMA volumes at 13,000 contracts.
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| Telco futures volumes were ruling near the 50 DMA volume mark at 7,500 contracts. While both Tisco (November average at 9,000 contracts) and SBI (November average at 8,700 contracts) were ruling 20 per cent and 40 per cent lower than their respective 50 DMA volumes.
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| The volume indicators are clearly negative on Infosys, Telco, Tisco, Reliance and SBI.
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| Other indicators like stock-specific and market-wide put-call ratios (PCRs) are also trending in the negative zone with most of them nudging up from historically low values.
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| Barring a few counters like HLL and HPCL, most of the top traded scrips viz. ACC, L&T, M&M, Infosys, SBI, Reliance and ITC have the stock PCR in the negative zone.
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| Most of them have upward sloping stock PCR averages. Now this may seem negative on the face of it, but then this, too, is a repeat of events. The stock PCR for most of these stocks have remained localised in the lower PCR band for the last few months.
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| The indicator has never sustained above the half way PCR band mark for most of them. This clearly highlighted a positive bias in the market. The question one can ask now is whether the indicators are finally ready to head north breaking earlier resistances.
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| However, range-bound price action accompanied by negativity from volumes and PCR are still not enough a trigger for a trend reversal and might just result in marginal dips before resuming the uptrend again, something like what we have witnessed on prior occasions.
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| On the positive side we have historically high open interest (OI) values for some heavyweights which are witnessing a dip in trading volumes.
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| For example Reliance has the ruling OI around 35 per cent more than its 50 DMA ruling at 10,000 contracts. Even counters like Telco have OI about 18 per cent more than the 50 DMA OI value ruling at 2,700 contracts.
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| Even aggregate OI at about Rs 9,000 crore is equivalent to the ruling average trading volume. Even the FII OI is still above the Rs 3,000 crore mark.
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| There is no visible sign of panic in OIs and it seems that the market and players are still comfortable holding a section of stocks at the current levels.
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| Another positive indication comes from implied volatilities (IVs), which have been playing truant for quite a while. After touching a high of 34 per cent in September 2003, the Nifty IVs are clearly trended downwards.
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| This incidentally is a repeat of events last year when IVs rose to a high of 24 per cent on December 19, 2002 and witnessed a decline after that.
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| The markets peaked out on January 1, 2003 when the IV touched a low of 15 per cent. A drop in IVs below the 20 per cent mark has been associated with a high degree of complacency in the Nifty. It suggests extreme optimism.
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| Current IVs suggest an inching up of the markets before any signs of exhaustion. Nifty possibly may make a new high before forming a market top.
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| The IV indication also doesn't come without its limitations. IVs originate from stock options which still constitute a third of the total equity derivatives market may be the very reason why this indicator has faltered on occasions.
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| In conclusion, most of the indicators are still giving mixed signals. There is no visible consensus. This coincidentally seems so apt for a market that is about to top. But then, as I said, I am not the 'forecaster from Medugorje'. I, too, am looking for her.
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| (The author is derivatives strategist at Edelweiss Capital Ltd) |
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