'Multibaggers' searches on Google: Here's why it indicates trouble for markets

A lot of people are searching for 'multibaggers' on Google: Here's why it indicates trouble for markets

In the last five years, whenever interest in the keyword 'multibagger' has hit a peak, indicating rising euphoria around equities, markets tend to correct.By Kshitij Anand http://www.moneycontrol.com/news/business/markets-business/the-moment-you-type-multibagger-in-google-search-it-spells-doom-for-markets-2252307.html




An analysis of Google Trends suggests that over the past five years, whenever interest in the term 'multibagger' hits a peak, it spells a weak spell for Indian markets.

A multibagger is a term used for a stock that has at least doubled in value over any time period. So a stock that has clocked 100 percent returns is a 1-bagger, a stock that has returned 200 percent is a 2-bagger and so on.

If you input a keyword into Google Trends, it would show you the historical interest in the term on a scale of 0 to 100, relative to the highest point on the chart for a given region and time.

A value of 50 means that the term is half as popular. Likewise, a score of 0 means the term was less than 1 percent as popular as the peak.

In the last five financial years, whenever this indicator hit the 100 mark with respect to the popularity of the searched item which is, in this case, ‘Multibagger’, it led to a sharp fall in the Nifty by 300 to nearly 1,000 points.



In the financial year 2017, Multibagger keyword hit the important 100 mark in March when benchmark indices hit a record high and it remains to be seen what happen next.

In the last financial year, this sentiment indicator hit 100 in the week of December 20, 2015, to December 27, 2015. The Nifty index rose marginally but slipped nearly 700 points thereafter to make a low of 7,200.



This indicator could be taken as the first clue that euphoria is at its peak and traders should tread with caution. Every stock can’t become a multibagger and to find one requires time and patience.

Retail investors do not understand the difference between a quality and a junk stock. They mostly take calls recommended by their brokers, who might be using them to earn a higher commission on small and midcap space.

"Generally, retail investors take calls from their brokers and sometimes in the race of generating higher returns retail investors end up investing on illiquid and punt calls; and the blame directly goes to the overall equity market," Anil Rego, CEO & Founder of Right Horizons told Moneycontrol.com.

“Euphoria is good in the market which leads to such searches; however, one should have the quality filter ready to identify fundamentally sound stocks, which comes with 1) daily reading of business newspapers, 2) shortlisting of companies/sectors on the basis of good fundamentals and 3) technical analysis to get the point of entry,” he said.

The term was searched the most from Mumbai, followed by Bangaluru, Ahmedabad, Pune and Hyderabad.

People also searched other keywords such as multibagger stocks for 2017, multibagger stocks India 2017, 16 tricky ways to identify and pick multibaggers etc.

Expert advises investors not to get swept away in the euphoria and use filters to identify the right quality of stocks according to your risk profile. Rego further added that ‘Euphoria’ is good, but it should have boundaries and filters to remove dirt.

Multibaggers in the making

Multibagger stock selection requires an investment horizon of 3-5 years, which is a challenging proposition. ICICI Securities introduced a segment by the name of "Nano Nivesh" wherein they recommend midcap and small cap stocks companies with good and scalable business models, dependable management and sound financials.

"Our earlier recommendation such as Atul Auto, Siyaram Silk, Wim Plast, D-link, Apcotex Industries, CCL Products have been multibaggers turning 2-9x over 4-5 years," Pankaj Pandey, Head of Research, ICICI Securities told Moneycontrol.com."Our recent Nano Nivesh picks with scalable opportunities include Kanpur Plastipack, Prima Plastics, Bhartiya International, NCL Industries, Linc Pen & Plastics and Shree Pushkar Chemicals," he said.

Rs 4.5 lakh cr of investor wealth wiped out in Jan 2016

Rs 4.5 lakh cr of investor wealth wiped out in Jan; 10 value picksBy Kshitij Anand, ECONOMICTIMES.COM | 13 Jan, 2016, 12.25PM IST


NEW DELHI: The New Year started on a muted note for Indian investors, as Rs 4.5 lakh crore of investor wealth got wiped out in the first eight sessions of the year.

The strong selloff in equities pulled down the combined market valuation of all BSE-listed companies on to Rs 96.37 lakh crore as of January 12.

Total investor wealth, measured in terms of the cumulative market value of all listed stocks, fell by Rs 4.5 lakh crore to Rs 96.37 lakh crore as of January 12 compared with Rs 100.93 lakh crore on January 1. The S&P BSE Sensex lost nearly 5 per cent during the same period.


The domestic equity market remained volatile in the past few sessions largely weighed down by domestic as well as global factors. Relentless selling by foreign institutional investors (FIIs) has dragged the benchmark indices lower, despite positive flows from domestic institutional investors (DIIs).

"The market is currently reacting to both global headwinds as well as low expectations for this earnings season. The fact that commodity prices are still easing a little bit, especially with crude hitting its lowest point after many years, the market remains under pressure," Sashi Krishnan, CIO, Birla Sun Life Insurance, said in an interview with ET Now.

The next big trigger for the market would be any sign of earnings recovery, say analysts. The first half of calendar 2016 is likely to remain muted, but it should bounce back from the second half. Till then, the near-term direction of the market will be determined by global events, especially global flows which do not look good.

FPIs have pulled out over Rs 5,000 crore from Indian equity market so far in January, amid worries over global economic slowdown led by China and a fall in crude oil prices, which broke below the $30 a barrel level on Wednesday for the first time in 12-years. DIIs have pumped in close to Rs 2,500 crore in the same period.

A fall in crude oil prices has led to redemption pressure on various emerging market funds and the impact of the same is now being felt in most emerging markets, including India.

"Sovereign wealth funds' allocations to emerging markets (EMs) have reduced considerably. Their allocation to equities, in general, has dropped and anecdotally we know that there have been some withdrawals, particularly by sovereign wealth funds, from EMs. This trend will continue as long as commodity prices, oil in particular, continue to behave this way," Manishi Raychaudhuri of BNP Paribas, said in an interview with ET Now.

"There is no getting away from this trend and, as a consequence, countries that are economically protected from this turmoil, will have to bear the brunt. At least, their equity markets will have to bear the brunt," he said.

Raychaudhuri said the basic hypothesis is that India is relatively protected from the global turmoil, but at the same time, it would not be entirely protected. "We cannot hope to have absolutely no impact on the equity market when the emerging market universe is in such a turbulent period," he said.

We have collated a list of 10 stocks from different experts to buy on dips with an investment horizon of over 12 months:


Analyst: Sharmila Joshi of Sharmilajoshi.com

Ashok Leyland: Target price Rs 120
When market is being weighed down by global woes, it is great to stick with stocks where earnings are good. Ashok Leyland has proven that its sales numbers are likely to remain strong. Although, third quarter is typically not a very strong quarter, but there have been very good numbers from Ashok Leyland month on month, and also the fact that the CV cycle turns, it stays up for a longer time. They are outperforming the rest of the peers within the CV space.

"I think they have worked quite a bit on their balance sheet to bring down their leverage positions and this will now soon start reflecting in their bottom line," said Joshi. "The entire mining belt where orders were not forthcoming for the last three, four quarter is now seeing some resurgence there. I think all things point to a good cycle for CVs which is why I have a buy on Ashok Leyland," she added.

Marksans Pharma: Target price Rs 130
The pharma space is looking attractive. It is a great idea to be in for a slightly defensive play. Even within the defensive play, it's worth going with a midcap, where possibilities are good, said Joshi.

The possibility for Marksans Pharma in the soft gel capsule space is huge, because here the market is fairly decent, but the competition is lower which is why you see lesser price erosion when generics hit the market.

They are largely exporting to regulated economies overseas, the UK and the US. Their facility in Goa has a USFDA approval, which is a key positive. They have done an acquisition recently, so investors should try and buy on dips.

Brokerage: Kotak Securities

Century Plyboards (India): Target price Rs 230

The demand environment is likely to revive in the medium term. The brokerage expects demand to recover at 10-12 per cent every year going forward in medium to long term. GST implementation is likely to be a game changer for the sector.

Kotak Securities expects the stock to trade at higher multiples going forward as the company is ideally positioned to capture the upcoming demand as well as increased consumption with its leadership position and strong branding.

Hindustan Zinc: Target price Rs 195

Kotak Securities said zinc supply deficit is likely to widen in 2015 and 2016 on the back of the closure of mines in Australia, Poland and Peru in 2015. As per ILZSG, the zinc market will remain in deficit to the tune of 151,000 tonnes in 2015. Zinc prices have strengthened owing to the supply constraint in 2014, which led to decline in LME inventory from its peak of 1.2MT in December 2012.

At CMP, the stock trades at 7.6 times/7.3 times of FY16E/FY17E earnings. Its EV trades at 3.5 times/2.8 times FY16e/FY17e Ebitda. The closure of several zinc mines across the world bodes well for zinc prices in the medium term and widens opportunities for strong players in the business. "We initiate coverage of the stock with a buy rating and a target price of Rs 195," the brokerage said.

ICICI Bank: Target price Rs 400

The brokerage likes the quality of liability franchise - CASA mix at 45.1% (Q2FY16), is one of the best in the industry. Net interest margin (NIM) has been strong on back of strong accretion to low cost deposits as well as better asset liability management (ALM). While retail piece has witnessed insignificant net slippage, corporate segment continues to perform well. There is lower risk on SME portfolio. Return on assets (RoA) is likely to remain stronger at 1.8% (FY16/17), driving up the RoE to 15%+ (FY17).

Incremental stress build-up is front-loaded and likely to be lower in FY16 as compared to the same seen during FY15. "We have used SOTP method to value the stock, where standalone business comes to Rs.323 (2.0x FY17E ABV) and subsidiaries are valued at Rs.77 (holding co discount: 20%)," said the report.

PNC Infratech: Target price Rs 609

Pnc Infratech (PNC) has a long history in the roads sector with over 15 years of experience in executing NHAI projects. PNC has track record of timely and before schedule completion of projects and received early completion bonus.

The company has an order book of Rs 43.9 billion, including L1 order of Rs 8.1 bn. Further, It has bid pipeline of Rs 120 bn of projects and is targeting to add Rs 25-30 bn of new orders per annum in the next two years, which gives high revenue growth visibility.

It has already infused Rs 4.9 bn of its equity in BOT projects and does not have any further equity commitment. The company has negligible debt at standalone level and maintains high core RoCE of 25% plus.

Praj Industries: Target price Rs 105

Praj continues to enjoy leading position in the ethanol business with 600 references across globe. The company gets 25% of business from repeat customers. The order backlog is up 57% y-o-y at end of Q2FY16.

The company is also a potential beneficiary from the "Clean Ganga" initiative. One factors which really works in favour of the stock is the fact that the company is debt free and has Rs 2.21 bn in cash in balance sheet.

Brokerage firm: Credit Suisse

Emami: Target price Rs 1,240

Emami is amongst the fastest growing listed consumer staples companies in India with offerings across personal care, hair care, OTC, health supplements etc. Credit Suisse is of the view that the recent stock correction is due a combination of adverse seasonality and oneoff factors which are only specific to FY16.

The company has 45% of revenue coming from summer and winter products and in FY16, both were delayed. Kesh King (its recent acquisition in June 2015) has been facing teething problems in distribution which should be behind us from 4Q16.

"We expect 4Q to hit the normal quarterly run rate, and then grow in FY17 with marketing interventions from Emami," said the Credit Suisse report.

Kajaria Ceramics: Target price Rs 1,150

Kajaria is the largest tile manufacturer in India with attractive financial metrics - 25% earnings CAGR over FY15-17, over 25% ROE, net debt-equity of below 40%. While the current discretionary demand is weak across segments, the company has sustained near double-digit topline growth.

The company has significant capacity expansion plans in place which can support growth going forward (33% expansion over FY15-17E). Credit Suisse believes that falling gas prices can significantly boost the company's EBITDA margins for Kajaria.

Power and fuel costs account for 20% of revenue for the company and about 60% of the gas is at contracted rates (as at 2QFY16) which were at a significant premium to spot rates. But with the recent Petronet Rasgas renegotiations, CS expects contract gas rates for FY17/18 to fall by 27%/9% from earlier estimates providing.

NIIT Technologies: Target price Rs 675

NIIT Technologies is a mid-sized IT services company with niche in travel and insurance verticals. Credit Suisse like the stock for its attractive valuations (11x FY17 P/E) and positive business momentum.

Though NIIT Tech significantly outperformed the peers in 2015, it still trades at moderate 11x FY17 P/E. With positive business momentum, there could be upside to the brokerage firm's margin estimates. Any material client specific issues could pose downside risk.

Credit Suisse has an Outperform rating on the stock with a target price of Rs675 based on 12x Dec-17 EPS.
(Views and recommendations given in this section are the analysts' own and do not represent those of EconomicTimes.com. Please consult your financial adviser before taking any position in the stock/s mentioned.)

Using DMI

Using DMI

The primary objective of the trend trader is to enter a trade in the direction of the trend. Reading directional signals from price alone can be difficult and is often misleading because price normally swings in both directions and changes character between periods of low versus high volatility.

The directional movement indicator (also known as the directional movement index - DMI) is a valuable tool for assessing price direction and strength. This indicator was created in 1978 by J. Welles Wilder, who also created the popular relative strength index. DMI tells you when to be long or short. 

It is especially useful for trend trading strategies because it differentiates between strong and weak trends, allowing the trader to enter only the strongest trends. 

DMI works on all time frames and can be applied to any underlying vehicle (stocks, mutual funds, exchange-traded funds, futures, commodities and currencies). 

Here, we'll cover the DMI indicator in detail and show you what information it can reveal to help you achieve better profits. (For background reading, see Momentum And The Relative Strength Index.)

DMI Characteristics
DMI is a moving average of range expansion over a given period (default 14). 

The positive directional movement indicator (+DMI) measures how strongly price moves upward; the negative directional movement indicator (-DMI) measures how strongly price moves downward. 

The two lines reflect the respective strength of the bulls versus the bears. Each DMI is represented by a separate line (Figure 1). 

First, look to see which of the two DMI lines is on top. Some short-term traders refer to this as thedominant DMI. 

The dominant DMI is stronger and more likely to predict the direction of price. For the buyers and sellers to change dominance, the lines must cross over.

A crossover occurs when the DMI on bottom crosses up through the dominant DMI on top. 

Crossovers may seem like an obvious signal to go long/short, but many short-term traders will wait for other indicators to confirm the entry or exit signals to increase their chances of making a profitable trade. 

Crossovers of the DMI lines are often unreliable because they frequently give false signals when volatility is low and late signals when volatility is high. 

Think of crossovers as the first indication of apotential change in direction. (For more insight, read the Moving Averages tutorial.)

Source: TDAmeritrade Strategy Desk
Figure 1: The +DMI and -DMI are shown as separate lines. There are several false crossovers ( Point 1) and one crossover at Point 2 that leads to an uptrend with +DMI dominant. Note: The calculations for DMI are complicated and are referenced elsewhere. Also, DMI is normally plotted in the same window with the ADX indicator, which is not shown.

DMI is used to confirm price action (see Figure 2). The +DMI generally moves in sync with price, which means that the +DMI rises when price rises, and it falls when price falls. 

It is important to note that the -DMI behaves in the opposite manner and moves counter-directional to price. The -DMI rises when price falls, and it falls when price rises. 

This takes a little getting used to. Just remember that the strength of a price move up or down is always recorded by a peak in the respective DMI line.

Reading directional signals is easy. When the +DMI is dominant and rising, price direction is up. 

When the -DMI is dominant and rising, price direction is down. But the strength of price must also be considered. DMI strength ranges from a low of 0 to a high of 100. 

The higher the DMI value, the stronger the prices swing. 

DMI values over 25 mean price is directionally strong. DMI values under 25 mean price is directionally weak.

Source: TDAmeritrade Strategy Desk
Figure 2: 

DMI is weak at Point 1 and price is choppy. The +DMI rises strongly above 25 at Point 2 and the uptrend follows. Note how +DMI moves with price at Point 3 and -DMI moves counter-directional to price at Point 4.

DMI Momentum
The great feature of DMI is the ability to see buying and selling pressure at the same time, allowing the dominant force to be determined before entering a trade. 

The strength of a swing high (bulls) is reflected in the +DMI peak, and the strength of a swing low (bears) is seen in the -DMI peaks. 

The relative strength of the DMI peaks tells the momentum of price and provides timely signals for trading decisions. 

When the buyers are stronger than the sellers, the +DMI peaks will be above 25 and the -DMI peaks will be below 25. This is seen in a strong uptrend. But when the sellers are stronger than the buyers, the -DMI peaks will be above 25 and the +DMI peaks will be below 25. In this case, the trend will be down.

The ability of price to trend depends on continued strength in the dominant DMI. 

A strong uptrend will show a series of rising +DMI peaks that remain above the -DMI for extended periods of time (Figure 3). The opposite is true for strong downtrends. 

When both DMI lines are below 25 and moving sideways, there is no dominant force and trend trades are not appropriate. 

However, the best trends begin after long periods where the DMI lines cross back and forth under the 25 level. 

A low risk trade setup will occur after DMI expands above the 25 level and price penetrates support/resistance.

Source: TDAmeritrade Strategy Desk
Figure 3: The +DMI crosses above 25 at Point 1 and remains above the -DMI as the uptrend develops. Note the absence of any crossover by -DMI during the uptrend. Here, the buyers are strong (+DMI >25) and the sellers are weak (-DMI <25).

DMI Confirmation
DMI lines pivot, or change direction, when price changes direction. 

An important concept of DMI pivots is they must correlate with structural pivots in price. When price makes a pivot high, the +DMI will make a pivot high. When price makes a pivot low, the -DMI will make a pivot high (remember -DMI moves counter-directional to price).

The correlation between DMI pivots and price pivots is important for reading price momentum. Many short-term traders watch for the price and the indicator to move together in the same direction or times they diverge. 

One method of confirming an asset's uptrend is to find scenarios when price makes a new pivot high and the +DMI makes a new high. Conversely, a new pivot low combined with a new high on the -DMI is used to confirm a downtrend. This is generally a signal to trade in the direction of the trend or a trend breakout

Divergence, on the other hand is when the DMI and price disagree, or do not confirm one another. An example is when price makes a new high, but the +DMI makes a lower high. 

Divergence is generally a warning to manage risk because it signals a change of swing strength and commonly precedes a retracement or reversal. (For more on this topic, read Divergences, Momentum And Rate Of Change.)

Source: TDAmeritrade Strategy Desk

Figure 4: This is an example of when the price and indicator agree (Point 1), where price makes a new high and +DMI makes a new high, signaling a long entry. There is also an example of divergence (Point 2), where price makes a new high and the +DMI makes a lower high; the result is a trend retracement at Point 3.

DMI Contractions and Expansions
The DMI lines are a good reference for price volatility. Price goes through repeated cycles of volatility in which a trend enters a period of consolidation and then consolidation enters a period of trend. 

When price enters consolidation, the volatility decreases. Buying pressure (demand) and selling pressure (supply) are relatively equal, so the buyers and sellers generally agree on the value of the asset. 

Once price has contracted into a narrow range, it will expand as the buyers and sellers no longer agree on price. Supply and demand is no longer in balance and consolidation changes to trend when price breaks below support into a downtrend or above resistance into an uptrend. Volatility increases as price searches for a new agreed value level.

Volatility cycles can be identified by comparing the slopes of the DMI lines that move in opposite directions whenever range expansion or contraction occurs (Figure 4). 

Many short-term traders will look for periods when the DMI lines move away from one another and volatility increases. The farther the lines separate, the stronger the volatility. Contractions occur when the lines move toward one another and volatility decreases. Contractions precede retracements, consolidations or reversals.

Source: TDAmeritrade Strategy Desk
Figure 5: The first expansion at Point 1 is part of the downtrend. The subsequent contraction at Point 2 leads to a reversal that begins with another expansion at Point 3. The next contraction at Point 4 leads to a consolidation in price.


Bulls, Bears and Trend
DMI peak analysis fits well with trend principles. Before using any indicator, always look at price. Price is trending up when there are higher pivot highs and higher pivot lows. 

When higher highs in price are accompanied by higher highs in +DMI, the trend is intact and the bulls are getting stronger. Lower pivot highs and lower pivot lows signify a downtrend. 

When the -DMI peaks make higher highs, the bears are in control and selling pressure is getting stronger.

In any trend, look to the DMI for momentum convergence/divergence; this gives a trader confidence to stay with the trend when price and DMI agree and manage risk when they disagree. The best trading decisions are made on objective signals and not emotion.

Let price and DMI tell you whether to go long or to go short or just stand aside. You can use DMI to gauge the strength of price movement and see periods of high and low volatility. DMI contains a wealth of information that can identify the correct strategy for profit whether you are a bull or bear.


Read more: DMI Points The Way To Profits http://www.investopedia.com/articles/technical/02/050602.asp#ixzz3v2krJMH5
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Weighted Moving Average-Trade with the Volume Weighted Moving Average

4 Simple Ways to Trade with the Volume Weighted Moving Average (VWMA)
By Alton Hill


As stated in its name, the volume weighted moving average (VWMA) is similar to the simple moving average; however, the VWMA places more emphasis on the volume recorded for each period. A period is defined as the time interval preferred by the respective trader (i.e, 5, 15, 30).

Therefore, if you place a 20-period simple moving average (SMA) on your chart and at the same time, a 20-period volume weighted moving average, you will see that they pretty much follow the same trajectory. However, on further review, you will notice the averages do not mirror each other exactly.

The reason for this discrepancy, as we previously stated is the VWMA emphasizes volume, while the SMA only factors the average of the closing price per period.


VWMA versus SMA

The above chart is of Microsoft from September 25, 2015. On the chart, we have placed a 20-period simple moving average (red) and a 20-period volume weighted moving average (blue). At the bottom of the chart, you will also see the volume indicator, which we will use in order to demonstrate how the VWMA responds to volume. In the green circles on the chart and on the volume indicator, we have highlighted the periods of high volume. Notice, that wherever we have a big volume candlestick, the blue volume weighted moving average starts moving away from the trajectory of the red simple moving average. Then, whenever we have lower market volumes, the red simple moving average and the blue volume weighted moving average are very close in value.

Can you see the difference now?
What is the Volume Weighted Moving Average good for and what signals can we get out of it?

The VWMA has the ability to help discover emerging trends, identify existing ones and signal the end of a move.

#1 – Discovering Emerging Trends

If the volume weighted moving average switches below the simple moving average, this implies a bearish move is on the horizon. This could lead to a weakening in the bullish trend or an outright reversal. If the price is able to break through both the VWMA and the SMA a bearish trend is confirmed and a short position can be initiated.

Conversely, if the volume weighted moving average moves above the simple moving average, a bullish trend change is likely around the corner. Once the price is able to break both the VWMA and the SMA to the upside, one can open a long position.

The below chart illustrates these trade setups.


Breakout through VWMA and SMA

This is a M2 chart of Deutsche Bank from August 5, 2015. On the chart, I am using the 30 SMA and 30 VWMA. As you see, after the market was range bound for a period of time, we notice an increase in the distance between the volume weighted moving average and the simple moving average. At the same time, the price breaks out of the range, which gives us an additional bullish signal. We go long with the second bullish candle after the breakout of the range and we enjoy the impulsive move higher.

#2 – Identifying Current Tends

Here we have a simple rule, if our volume weighted moving average is between the chart and the simple moving average, then we have a signal for a trending market. Note that sometimes the volume weighted moving average will test the simple moving average as a support and resistance, depending on the primary direction of the security. These tests can be considered as an implication of a potential trend reversal. Take a look below:


Trend Folllowing and VWMA

This is a M5 chart of Google from July 22nd, 23rd and 24th from 2015. We use the same 30 SMA and 30 VWMA as in the previous chart example.

In the green circle, you will see the moment where the price breaks the 30 SMA and the 30 VWMA in a bearish direction. At the same time, the blue VWMA further separates from the SMA and is between the SMA and the candlesticks. This is a clear “short it” signal. If you check a half an hour later, you will see that the blue VWMA is still below the red SMA, which means that the bearish trend is still intact.

The arrows show the moments, where the VWMA provided a signal for the continuation of the bearish trend. If we were to go short at any of these points, we would not be disappointed. The last red arrow shows us the moment when the bearish trend shows signs of slowing down as the VWMA and SMA begin to hug one another.

#3 – Detecting the End of a Trend

This signal is pretty much the same as when we had to discover emerging trends. The difference is we are looking for a contrary signal to the primary trend. For example, you have taken a long position and you notice a tightening in the distance between the VWMA and the SMA. This is the moment where you might want to consider the option to get out of the market and to collect your profits.


Trend Reversal and VWMA

The above chart is of Facebook from July 16th – 22nd. Facebook begins the week with a strong gap up with high volume. After the gap, we have a solid bullish candle and a large distance between the 30-period VWMA and the 30-period SMA. Therefore, we go long with the closing of the first bullish candle. Facebook keeps increasing until the volume drops and the market enters a correction phase. This is when the blue VWMA interacts with the red SMA and we get a “caution” signal. Fortunately, with the next candle, the trading volume increases and the VWMA moves again above the SMA.

Still in the game! Bullish we are!

We hold our position for about 20 more periods and we nearly double in our long position. Then, the blue VWMA switches below the red SMA (red circle) and refuses to go above for about 8-9 periods. We believe 3-4 periods of waiting are enough in order to realize that this is the right moment to close our position. After we exit our position, the price of Facebook starts to rollover and eventually breaks down through the moving averages. Exiting Facebook at the right time brought us a profit of about 55 bullish pips! Viva les Market Volumes!

#4 – The VWMA Divergence

Yes, that is correct! You can discover divergences between the volume weighted moving average and the general chart. You will say, “How could this be possible? This is not an Oscillator!”

Nevertheless, the volume weighted moving average could be in a divergence with the chart, and the secret is in the second moving average we advised you to use. When you have for example a simple moving average in addition to the chart, the volume weighted moving average will switch above and below your simple moving average depending on trade volume. Therefore, whenever the volume weighted moving average is closer to the chart than the simple moving average, we can say that the market is trending and volumes are increasing! Still not getting “the divergence”, let’s walk through a chart example.


Divergence and VWMA
Above is an M15 chart of Microsoft from the first seven days of October, 2015. As you see, after a strong bullish movement, the blue volume weighted moving average moves below the red simple moving average. Therefore, we expect to see a decrease on the chart. Although the bullish movement loses its intensity, the price of Microsoft still manages to close higher for a few candlesticks. This all happens while the blue volume weighted moving average stays beneath the red simple moving average, thanks to the bigger trading volumes shown on the bottom of the chart. This is a bearish divergence, which you could use as an opportunity to go short.


Divergence and VWMA – 2

KABOOM! The result is 100 bearish pips and a successfully traded bearish divergence between the chart and your 20-period volume weighted moving average. Note, the high bearish volumes at the bottom, which appeared right after the divergence and right before the drop of the price. These bearish volumes also confirm the authenticity of our bearish divergence.

In Summary

In conclusion, we could say that although the volume weighted moving average looks complicated at times, it is not!

1. If you have difficulties understanding the VWMA, just open a volume indicator at the bottom of your chart. It will give you a better picture explaining the “chaotic” movement of the VWMA in comparison to the SMA.
2. The volume weighted moving average places a greater emphasis on periods with higher market volume.
3. The volume weighted moving average is a better indicator when combined with another trading instrument for trading signals.
4. The simple moving average is a great tool to combine the volume weighted moving average.
5. VWMA can provide the following signals
6. A trend is coming!
7. A trend it is!
8. The trend is ending!
9. The VWMA can also identify divergence in the market

- See more at: http://tradingsim.com/blog/volume-weighted-moving-average/?awt_l=KPRhQ&awt_m=3ivNTbcsUa0_bZ_#sthash.Cssb198B.dpuf

High Frequency Trading: SEBI says fact-finding exercise already underway

Action on High Frequency Trading: SEBI says fact-finding exercise already underway

MONEYLIFE DIGITAL TEAM | 26/10/2015 06:29 PM 



In a reply to a set of 51 questions raised by Moneylife on 12th September on high frequency trading in NSE, SEBI has just informed us that the issue is drawing its serious attention and that a fact-finding exercise is already underway

Market regulator Securities and Exchange Board of India (SEBI) told Moneylife that its Technical Advisory Committee (TAC) has extensively discussed the issue of high frequency trading (HFT) and the matter is drawing its serious attention. SEBI was replying to a detailed email sent on 12 September 2015 by Sucheta Dalal, Managing Editor of Moneylife. It said, "We would like to thank you for taking efforts to flag the issue. We would like to inform you that a fact-finding exercise is already under way by SEBI. The matter has also been discussed extensively in the Technical Advisory Committee of SEBI and is drawing its serious attention. While we have noted the issues raised in your email, you will appreciate that we would not like to make comments on matters which are under investigation."

The same 51-point questionnaire was also sent to top executives of National Stock Exchange (NSE). However, there has been no response from the stock Exchange. In June this year, Moneylife had written about the allegations by a Whistleblower about NSE’s HFT operations in 2011-14 period . Moneylife had duly contacted NSE for its response before writing the article. On that occasion too, the NSE had refused to respond despite three attempts by Moneylife to elicit its views. After Moneylife published the articles on HFT , NSE filed a Rs100 crore defamation suit against Moneylife with prayers to remove the articles and stop Moneylife from writing further on the issue. A single Judge in Bombay High Court dismissed this. The judge also asked NSE to pay to Ms Dalal, Debashis Basu, Editor & Publisher of Moneylife Rs1.5 lakh each as cost and Rs47 lakh to two trusts, Tata Memorial Hospital and the Masina Hospital for free treatment of the poor. The Exchange has filed an appeal against that order.

Of the 51 questions Moneylife had asked to SEBI and NSE, some the questions were:

• What is the additional information that a co-location user get vis-a-vis other brokers?
• What is the response time that NSE co-location users receive vis-a-vis non-co-location users? 
• How many physical co-location facilities does NSE have? Why is there more than one colocation? 
• What are the advantages a person will enjoy if he or she continued to get faster information vis-a-vis others in NSE co-location?
• What advantages do members in co-location receive vis-a-vis members who are not in co-location?
• What is the value of orders placed by members in last 5 years from NSE co-location? 
• Under which SEBI circular or guidelines did NSE start providing co-location facilities? If these services were started before any guidelines were formulated, did NSE ask for specific SEBI approval for starting such facilities?
• Were some NSE members ever allowed to log in ahead of others systematically?

Here is the reply we received from SEBI...

Subject: Your email to Chairman, SEBI with regard to complaint of a market participant against NSE

This has reference to your email dated September 12, 2015 to Chairman, SEBI wherein you had sought certain details regarding an anonymous complaint of a market participant against NSE.

We would like to thank you for taking efforts to flag the issue. We would like to inform you that a fact finding exercise is already under way by SEBI. The matter has also been discussed extensively in the Technical Advisory Committee of SEBI and is drawing its serious attention. While we have noted the issues raised in your email, you will appreciate that we would not like to make comments on matters which are under investigation. However, we would like to inform on the various measures taken by SEBI, in the recent past.

SEBI has ensured that regulation of the securities market keeps pace with the dynamism displayed by the capital markets. SEBI has taken various proactive measures over the last few years to ensure that appropriate risk management framework is in place to address the risks associated with adoption of such technological advancements.

In line with the above emphasis, SEBI was one of the first securities market regulators globally to put in place a framework for regulation of algorithmic trading. SEBI has also put-in place a regulatory framework to ensure fair and equitable access to the co-location facility and integrity and security of the data and trading systems. The regulatory framework was finalized after taking on-board views of the market participants through a discussion paper floated on May 03, 2013. High Frequency Trading (HFT) recently has drawn the attention of IOSCO too and the member jurisdictions are deliberating the impact of such trading on the market structure and market participants. SEBI is in the process of studying various issues involved and gather international experience to take further regulatory steps to regulate HFT.

In addition, SEBI has also issued circulars on various other technology related areas such as Cyber security and cyber resilience framework for stock exchanges, clearing corporation and depositories, Testing requirements for trading software, Business continuity planning and disaster recovery, Direct Market Access, Internet Based Trading, Safeguards to avoid trading disruption in case of failure of software vendor, etc.

We may like to state that SEBI would take all necessary steps in the interests of investors in securities and market integrity.

Sebi taking feedbacks on slowing down high-frequency trading

Sebi taking feedbacks on slowing down high-frequency trading; curbs may hit volumes

By Sugata Ghosh & Nishanth Vasudevan, ET Bureau | 7 Sep, 2015, 12.47AM IST

MUMBAI: Will India be among the first markets to put speed-breakers in the way of high-frequency trading (HFT) — a system accused of giving some traders undue advantage because of its capability to execute transactions at lightening speed? 

With markets regulatorSecurities and Exchange Board of India (Sebi) taking feedback from exchanges and select institutions on possible steps that could slow down the world of black-box trading, there is a growing feeling among sections in the market that some curbs on HFT may come before the year ends.

Many foreign institutions and large proprietary desks use sophisticated software programmes and place servers on the premises of stock exchange to enjoy an advantage over smaller brokers and traders.

Even though HFT comprises a big slice of trading volumes and restricting them could be an unprecedented measure, Sebi is internally considering steps to bring in a level playing field between HFT and non-HFT users, according to people familiar with the matter.

One of the proposals the regulator has asked for suggestions on is 'randomisation' of orders, which means doing away with the priority that HFT users enjoy. Under randomisation, orders would be bunched in the exchange system and run on a random basis. This will put HFT users at a huge disadvantage because the first order that hits the system need not be the one that hits the queue first.

"Bringing in randomisation will almost kill the HFT business as there is no advantage," said Nithin Kamath, chief executive of Zerodha. Since the last few years many foreign portfolio investors using HFT models have been trading on Indian bourses as either a member or client. Better known as algo traders, they use expensive and superior software models to get the best price at a super-fast pace.

BATCH AUCTIONS

Sebi is also considering batch auctions of trades, an idea introduced by a bunch of US academics, to eliminate the race of being the first in the order queue.

Under this system, exchanges would collect all the orders within frequent auction windows, match bids and execute them. Thus, high-frequency traders will not have the first mover's advantage.

The regulator is also considering barring exchanges from giving tick-by-tick data to HFT users. Tick data contains all buy and sell trades in a trading day.

Normal traders, who use Net to connect to the trading platform, gain access to four ticks at best. In case of HFT, traders are privy to as much as 300 ticks in a blink of the eye.

Though it is impossible for the human eye to detect trends at that pace, high frequency traders create advanced programs on their computers designed to read trends and execute trades on the basis of these ticks. Absence of availability of a higher number ticks takes away the advantage of HFT systems.

MINIMUM RESTING TIME

Further, the regulator is planning to introduce a minimum resting time for orders, a move that will prevent "spoofing" aimed at deceiving other market participants. Under this proposal, orders that are placed cannot be cancelled before a gap. Spoofers place a flurry of orders with an intention of attracting the attention of other traders, including high frequency, to the stock. They cancel the orders as the activity builds up. Global financial regulators have frowned upon this practice as it amounts to manipulation. "A minimum resting time for orders will be a great move.

We have seen several instances of spoofers walking away by misleading others," said the chief executive of a leading brokerage, which actively does algorithmic trading.

Global regulators have been talking about restricting HFT for a while but few have taken meaningfully action. If Sebi decided to implement all these proposals, India could probably be among the first to rein in high-frequency traders.

While the biggest impact of a clamp down on high frequency trading would be on NSE, brokers said aggressive restrictions would impact trading volumes in cash and equity derivatives with HFT traders contributing over 30% of the volumes. "There is a high chance that severe restrictions will squeeze trading volumes in a big way," said Zerodha's Kamath.

Institutional brokers worry this could lead to a flight of activity to Singapore, where Nifty futures are actively traded by foreign investors.

Black Monday: Rs 7L crore investor wealth lost-24th August 2015

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Black Monday: Rs 7L crore investor wealth lost

TNN | Aug 25, 2015, 02.32AM IST


Sensex tanks over 1500 points; biggest fall in 7 years

MUMBAI: In the 1970s and early '80s, Indira Gandhi and her inner circle would often raise the bogey of a mysterious, malevolent and invisible 'foreign hand', which was apparently hell bent on plunging India into turmoil and trouble.

Several decades later, a very visible foreign hand pushed the Indian markets off a cliff, sending the sensex hurtling to its worst single-day loss in points from one session close to another. The only consolation, if any, was that the body attached to the foreign hand was taking an even worse battering.

The sensex crashed a record 1,625 points to 25,742, a one-year low level, leaving investors poorer by Rs 7 lakh crore (over $100 billion) while the rupee closed at a two-year low of 66.65 to a dollar.

The 'Black Monday' crash was caused by fears of a deep and long-lasting slowdown in the Chinese economy, the second largest in the world, which accounts for 15% of global GDP and half of all global growth.


READ ALSO: Black Mondays — 7 of 10 biggest market bloodbaths on the day

Bloodbath in global markets: 5 things investors need to know today

Foreign funds took a record Rs 5,275 crore out of Indian stocks. Each of the 30 sensex and 50 Nifty constituents closed in the red, a highly unusual event.

The global financial bloodbath started after the Shanghai composite index lost 8%, proving ineffective a series of steps that the Chinese government and its market regulator had taken in the last few weeks to stem outflow of money from the country.



As a result, the Nikkei in Japan and Hang Seng in Hong Kong too crashed over 4.5% each. Major European markets too opened with over 4% losses and the Dow Jones dipped over 1,000 points in early trades, though it bounced back later to offer a glimmer of hope.

Along with stocks, several emerging market currencies competed with each other in their race to the bottom while the dollar and the Japanese yen rallied.

Both the government and the RBI governor stepped in to calm markets, assuring investors of all support to stem the volatility. Finance minister Arun Jaitley, downplayed the sell off saying it was "transient and temporary in nature".

Expectations of a possible rise in rates in the US, the largest economy in the world, also kept fund managers across the world cautious as they are not sure how global markets will react to such an event for the first time in nearly a decade. Most big players on the Street believe that once the dust from the current global carnage settles, India will possibly stand out as one of the top destinations for foreign investors. However, for the time being India is most likely to be bracketed along with fundamentally weaker emerging markets like China, Brazil and Russia because of the risk avoidance attitude among foreign fund managers.

READ ALSO: Why stocks are tumbling 6 years into the bull market

"Fundamentally nothing has changed in the Indian market in the past few weeks. Today's fall was led by a global risk-off mood that has set in with the US and Europe falling, mirrored by the regional markets, continuing weakness of the rupee, and at the same time redemptions from exchange traded funds (ETFs)," said Avinash Gupta, MD & head of institutional equity sales, Bank of America Merrill Lynch. "There is still room for markets to correct further but a sustainable pullback before the September 17 US Fed announcement is looking unlikely. Some global investors are likely to take a stock specific approach, that is buy into stocks that they believe in and which have particularly been beaten down recently," Gupta, who heads one of the largest foreign broking operations in India, said.

In the Indian market, real estate and metal stocks were the worst hit. Dealers said real estate stocks crashed because investors believe that with equity market too showing weakness, the already struggling real estate sector may see its troubles aggravating while metal stocks crashed on fears that China, the largest importer of metals till recently, will cut down on its consumption of commodities drastically. 

Globally commodity prices are hovering at levels not seen since 1999 though gold, considered a safe haven during uncertain times, recorded a smart recovery.

The day's selling erased about Rs 7 lakh crore from BSE's market capitalization, now at Rs 92.4 lakh crore. After about two months BSE's market cap has again fallen below the Rs 100 lakh crore mark.

Monday's sharp fall, that saw several of the midcap and small cap stocks crashing over 20% each, may also lead to margin selling of stocks of speculators by brokers on Tuesday morning. 

At times of sharp dips in stock prices, if speculators who had bought stocks on borrowed money can not make up for their losses, brokers are forced to sell those stocks to cut further losses. Such selling, called margin-based offloading, often pulls the market even further down, thus delaying a recovery.

In the currency market, along with the rupee which weakened 82 paise, all emerging market currencies also fell against the dollar. The Malaysian ringgit dropped to a 17-year low, while the Turkish lira and the Russian rouble also fell to fresh lows. Most of the emerging markets are being hit by a fall in commodity prices, which are expected to hurt their balance of trade.

Following Monday's decline in the rupee, it has fallen more than two rupees since the Chinese devaluation of the yuan last Monday. The government's comments failed to support the rupee which weakened to 66.74 in intra day. Dealers are now forecasting the rupee to breach 67 levels in the short-term but they also say it could rebound to 65 once the volatility ends.


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Why stocks are tumbling 6yrs into the bull market

Reuters | Aug 24, 2015, 07.32PM IST




Black Monday gets worse, Dow crashes 1,000 points minutes after opening

NEW YORK: Well, that was fun while it lasted.

For years, investors in US stocks shrugged off threats - a government shutdown, fear of a euro collapse, a near U.S. debt default - and just kept on buying. At the sixth anniversary of the bull market in March, the Standard and Poor's 500 index had more than tripled in value.

Now, buyers are hard to find. A wave of selling has hammered major indexes, with the S&P 500 losing nearly 6 percent last week. That was its worst weekly slump since 2011. US stock futures Monday are indicating another steep decline that could pull the index into what Wall Street calls a "correction," or a fall of 10 percent from a recent high.


Corrections are natural in a bull market, a pause in the market's march higher, and this one is long overdue. They usually come about once every 18 months. The last one was four years ago.

The big trigger for selling last week was yet more evidence of a slowdown in China's economy, but there were plenty of other worrisome developments weighing on the market. A look at a few of them, and why you may not want to panic, yet.

FEARS ABOUT CHINA

Despite Beijing's efforts to restore calm, the Chinese stock market has taken investors on a wild ride this summer. Then last week, the government announced a depreciation of the country's currency, stoking fear that the economic slowdown there was even worse than it had let on.

On Friday, more bad news: A gauge of manufacturing showed that key sector on the mainland is continuing to contract.

What happens in China matters, and not just because it is the world's second-biggest economy. Falling Chinese demand has sent prices plunging for all manner of commodities - iron, copper, oil. That has walloped countries that export them.

Its surprise devaluation also triggered other governments to drive their currencies lower, roiling financial markets and spreading fears of a currency war.

PLUNGING OIL

The steep drop in the price of oil in the last month has become a major concern for traders. Oil briefly went below $40 a barrel on Friday, its lowest price since the financial crisis six years ago, and fell firmly below that benchmark Monday.

If oil keeps falling, it is likely to drag down the S&P 500. Drillers and other energy companies make up a significant chunk of that index. Shares of those companies have plunged 35 percent in the past 12 months.

DISAPPOINTING PROFITS

The upside to falling oil is that all the money that drivers are saving at the gas pump should mean more spending by them at stores - and a faster-growing U.S. economy. But Americans are choosing to pay off debt instead of going shopping.

"Household finances are growing more healthy ... but you want to see a pickup in spending, too," said Tim Courtney, chief investment officer of Exencial Wealth Advisors.

The new frugality helps explain why the biggest long-term driver of stock prices - corporate earnings - have been so disappointing lately. In the second quarter, companies in the S&P 500 grew earnings per share just 0.07 percent from a year ago, according to research firm S&P Capital IQ. That is the worst showing in nearly six years.

The next report card on earnings doesn't arrive until October. In the meantime, investors will be looking at other indicators of economic and corporate health. This coming Friday, the government reports on consumer spending in July.

TRADING MILESTONE

Many investors pick and choose stocks based on a company's business outlook, but there is an entirely different class of trader that relies on technical indicators to make investment decisions. Many of their screens were flashing "sell" this week.

The S&P 500 and the Dow have broken through a few key technical levels recently. One important one is their 200-day moving averages, which the two indexes pierced on Thursday, helping to fuel selling. Both indexes dropped 2.1 percent that day, before further tumbling on Friday.

The good news is the last time the S&P 500 broke through its 200-day moving average, in early July, it bounced back from those levels after a few days.

RATE JITTERS

The Federal Reserve has been signaling that, with the economy improving, it could start raising rates to keep inflation in check, perhaps as soon as next month. For years, investors have been fretting that the market could drop sharply when the central bank starts raising rates. The rates, held near zero for the entire bull market, have been widely credited with pushing stock prices up.

This week investors did an about-face and started worrying about the opposite. In its minutes from the central bank's July meeting, released Wednesday, Fed officials expressed concern that China's slowdown could pose risks to the U.S. economy. Investors wondered whether that meant the growth here is fragile, and started selling stocks.

Ernie Cecilia, chief investor officer of Bryn Mawr Trust, said the switch in views is ironic, and a little unsettling.

"The market was saying, 'Start lifting rates. Let's get this over with,'" he said. "Now the market is concerned that Fed is worried the economy is slowing."

On the bright side, the US economy is looking healthier lately. Employers have been on a hiring spree, and that has helped push the unemployment rate to a low 5.3 percent.

Investors will get another clue on the economy on Thursday when the government releases its estimate of economic growth in the April-June period.