Bank Nifty: Component Strength Index 25-Oct-17

INTRODUCTION

I am experimenting and developing a Component Strength Score based on the study of the underlying constituents of the Index itself. I have started with Bank Nifty. Here is a WIP version.
  • The graph has three data points
    • The movement of BN itself (absolute points),
    • then there is a Component strength (CSS) raw score
    • overlaid with an EMA of the CSS.
  • How to read the Component strength score (CSS)
    • A score of 50 is neutral
    • A score between 51 and 60 is neutral with bullish bias
    • A score above 60 indicates strength in the rally
    • A score between 40 to 49 is neutral with bearish bias
    • A score below 40 indicates weakness (i.e. selling pressure)
    • CSS crossing over the EMA indicates a change in sentiment. As per data, BN getting into a neutral (from bearish) with a positive bias.
  • How to interpret the EMA
    • This a 13 period moving average of the CSS itself.
    • CSS above EMA with EMA above 50 can be considered strength
    • CSS Below EMA with EMA Score below 50 can be considered weakness 
    • A crossover of the CSS and EMA indicates a change of sentiment.

DATA 25-OCT-17

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Component Strength Score : 57
EMA : 49.81
Conclusion : Neutral with Bullish Bias 

Commentary:

Chart pattern: hanging man (with a liberal does of interpretation) at the top of the rally... potential reversal sign 
Range: ultra high range
Volume:  ultra high volume 
Conclusion : Requires a strong follow up day. Since tomorrow is expiry, two strong follow up days would help. Any longs to be closely monitored with trailing stop loss. 

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Disclaimer :


This blog is for educational and awareness purpose only. The views are intended for discussion and exchange of views rather than an expert opinion. This is not an recommendation to buy or sell or invest in the stock market and derivatives market. Kindly exercise caution and perform your own due diligence before investing in the market, after fully and clearly understanding the risks involved.

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