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CM Strategy

Optionalysis: And Yet Again, MA20 Shows That Trade as China and Commodities Sink

Optionalysis Header

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The MA20 is our proprietary indicator about market breadth. The MA20 is calculated by taking the number of Nifty stocks above their 20 Day Moving Averages, and we subtract from this number those that are below. We then take a further four day MA of the resulting number to smooth it out.

Since the Nifty has 50 stocks, this calculation will oscillate between -50, when there are no stocks above their 20 DMAs, to +50 when there are no stocks below. We have found that trading opportunities exist whenit crosses +30 from above to below, or -30 from below to above.

The MA20 has turned. After going to 31  on Monday it has retraced to 29. Now we now this is a good uptrend, but the signal has come and we should respect it. At this point the MA5 too has a slight turn to the downside.

Action: We’ll buy puts (Nifty, July). Depends on where the market opens but typically one or two strikes lower than the market should be good. 8400 puts look good right now, but if the market is below 8450 then we would look to 8300.

MA20

MA5

China and Commodities Fall

China’s stock market plunge protection efforts are apparently not working as the index is down another 4%. Commodities have fallen big time:

Metals

A drop in price in Commodities and the drama in China is indicating something we don’t know. Because everything else that we seem to know is apparently priced in? However, let’s not justify the fall – let’s try and react to it. Our system says it’s going down in the near term, so we’re just taking the position appropriately.

Slack Will Have It

We’ve been using the Slack group effectively (http://capitalmindpremium.slack.com) – please mailpremium@capitalmind.in if you haven’t yet got access. (Not available for trial members unfortunately). We’ll be posting in #actionable.

Warning: We are due for a loss

The System has made money since November 2014 and the scary thing is: it’s made money on every single trade since then.

Trades

We would be very very careful at this point. While our philosophy is to ride the tide, we would suggest extreme caution because this is not a fool proof system. A 50% stop loss is our limit. If you’re new, you might want to keep your position size much lower.

(I suck at marketing. This probably would have gotten advertised up the wazoo, and it’s real performance. But in my mind, there is something like too much of a good thing. Therefore, no trumpet blowing, let’s give it a year at least.)

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Disclaimer

Nothing in this newsletter is financial advice and should not be construed as such. Please do not take trading decisions based solely on the matter above; if you do, it is entirely at your own risk without any liability to Capital Mind. This is educational or informational matter only, and is provided as an opinion. 

Disclosure: The authors at Capital Mind have positions in the market and some of them may support or contradict the material given above, or may involve a direction derived from independent analysis.

Capital Mind for ZD

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