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CM Strategy

Optionalysis: MA20 Goes Bullish!

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 when it crosses +30 from above to below, or -30 from below to above.

The MA20 has turned, finally. We tried to preempt this twice because well, our stupidity. But on Tuesday it crossed from below to above, and despite being a down day, it looked interesting enough

MA20

But MA5 Isn’t Helping

This time however we note that MA5 (where we use 5 day averages) is going the opposite direction, going down from +30. So in that sense this is a rough situation.

 

MA5

A Trade

We enter this time with a:

• Buy on the 7900 call option at Rs. 97 (September)

• Half the quantity of the regular trade size due to the fact that MA5 is not supportive.

• Stop losses at 50% on trailing basis. Started at Rs. 49. Now at Rs. 64 since the call went to Rs. 129 today.

Note that this contract will expire next week so it better move fast. Tomorrow is a big event (US Rate Cut, or not) and an Indian holiday (for Ganesh Chaturthi). 

We know that option premiums will fall after the event and due to the holiday premiums will evaporate. We’re taking this trade anyhow – it’s a system so losses are expected.

Slack Will Have It

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

The Past Performance

The System has made money since November 2014 and the scary thing is: it’s made money on most trades since then.The last two trades have been losers; though the losses are minimal, we encourage you to consider this a VERY high risk system and that trades should be taken only with the understanding that you could lose a) a lot and b) very fast.

Trades

50% stop loss is our limit. If you’re new, you might want to keep your position size much lower.

Vashistha has an interesting idea here – use MACD Histograms for breadth, +1 for each stock where the MACD Histogram is positive, and -1 for each that is negative. We will have to test this further as a MACDHist for the Nifty – it might give us more smooth signals. More on that later.

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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.

 

Next Gen Financial Analytics

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