QUANT SYSTEM READINGS & MOCK PORTFOLIO -05.08.23

DISCLAIMER

Please be informed that the author of this blog by Capt Ganesh Raja Dhanuskodi (Hereinafter called Capt Ganesh) is not a SEBI registered Research Analyst or Financial Advisor. Capt Ganesh writes this blog to express his views based of more than two decades of experience in capital markets and based on the Quant system which he has invented and he does not do this for “consideration” as per SEBI regulations, which means he does not receive economic benefit through it. Readers of this blog must seek advice from registered Investment Advisors / Research Analysts before taking any trading or investment decisions.

Capt Ganesh has been investing and trading actively since 2001, building trading models since 2013 and has invented an AI based intraday trading system, which has a pending patent approval.

Dear friends,

I took a break from posting blog due to various personal commitments, where travel was involved. I was also meeting team members and potential investors for my AI intraday trading project. Now I have joined a marine assignment, but I have connectivity though not that great.

I am pleased to say that Quant System has generated returns of 100.32% till date since inception. 100% returns is a psychological barrier, but it is satisfying nevertheless. This translates into about 26% CAGR returns.

Trend was in progress in domestic markets and system generated signals were holding good, so there was no necessity to update.

Now we will look at various events which might have hidden clue for future market directions in general.

The gross domestic product, a broad measure of the country’s entire economic output, is on track to surge ahead to a 3.9% annual growth rate in the third quarter, up from the surprisingly high 2.4% growth rate posted in the second quarter, the Federal Reserve Bank of Atlanta’s GDP Now tracker showed on Tuesday.1 That would be the fastest the economy has grown since 2017, setting aside the bounce-back in the immediate aftermath of the pandemic.

Some economists think US recession is inevitable while others think it is nearly impossible, so much for lesser mortals looking for direction from them.

Meanwhile on Tuesday, 01.08.23, Fitch Ratings said it was knocking down the country's long-term foreign-currency issuer default rating (IDR) to 'AA+' from the highest score available of 'AAA'.

"In Fitch's view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025," the agency wrote in a commentary on the decision. "The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management."

There is a larger-than-expected increase in U.S. private payrolls in July fuelled bets on more monetary policy tightening and boosted the dollar and bond yields. The U.S. dollar index (.DXY) rose to a four-week peak on Wednesday and benchmark 10-year Treasury yields were at their highest since November after data showed U.S. private payrolls rose by 324,000 jobs last month. A Reuters poll had forecast private employment would increase by 189,000.

For the first time this year, the International Energy Agency (IEA) cut its 2023 outlook for worldwide oil demand growth, citing a "challenging economic environment." The IEA now anticipates crude demand will rise by 2.2 million barrels per day (mb/d) this year to an average of 102.1 mb/d per day. That was 220,000 barrels per day below its previous estimate. The group pointed to "persistent macroeconomic headwinds, apparent in a deepening manufacturing slump" for the revision. It said a "dramatic tightening" of monetary policy in many countries over the past year has squeezed demand. Article can be read on this link https://www.iea.org/reports/oil-market-report-july-2023

Meanwhile Annual inflation rate in the Euro Area slowed for a third consecutive month to 5.3% in July 2023 from 5.5% in June, in line with market forecasts, preliminary estimates showed. If we look carefully at the long-term inflation chart since 1992, it shows a different picture. Here it shows the inflation has moved out significantly from the long-term variance range and the present softening of inflation is kind of a corrective wave after the initial spike. Where it will stop and reverse is anybody’s guess, but 4% is the upper variance limit. Now one of the key components of inflation in Euro area is energy prices so, I would focus on that. The Russia-Ukaraine war has continued unabated and there is no sight of peace to bring stability to this region.

DJIA (DOW JONES INDUSTRIAL AVERAGE), buy trigger has been covered in details below.

Lets focus now on domestic market and economy.

Rainfall over the country during the second half (August to September period) of the southwest monsoon season, 2023 is expected to be normal - 94 to 106% of Long Period Average (LPA), according to the India Meteorological Department (IMD). The rainfall will “most probably be on the negative side of the normal, meaning in the range of 94-99% of the LPA, said Dr Mrutyunjay Mohapatra, director general, IMD.

Government has banned exports of non-Basmati rice after prices spiked by 3% last month. This is a pre-emptive measure but has ramifications globally, where Indian rice is consumed.

India's annual consumer inflation rate accelerated for the first time in five months to 4.81% in June of 2023 from an upwardly revised 4.31% in May, and above market forecasts of 4.58%. Food inflation increased to 4.99%, from 2.91%. Looking at long tern chart it shows that inflation is more or less range bound.

The 10 year Government Security index , after a stellar rally since 2018 is consolidating in a narrow range and there is no indication of a major reversal.

Business Confidence in India decreased to 126.40 points in the second quarter of 2023 from 132.90 points in the first quarter of 2023. source: Reserve Bank of India.

Capacity Utilization in India increased to 74.30 percent in the fourth quarter of 2022 from 74 percent in the third quarter of 2022. source: Reserve Bank of India. This indicator was moving in a long term trendline with a downward bias since 2012 but plunged in 2020 triggered by COVID pandemic. However, the pattern analysis of this indicates that this might inch up to 80% levels in coming few quarters.

The S&P Global India Manufacturing PMI ticked lower to a 3-month low of 57.7 in July 2023 from 57.8 in June. Still, the latest print was above market consensus of 57.0, pointing to the 25th straight month of growth in factory activity. Output expanded the least in 3 months but the rate of rise remained substantial as it continuously rose since July 2021. Also, buying levels rose slightly softer than the 12-year peak in May. New orders rose sharply again while growth in new orders picked up to the fastest since November 2022. Meantime, the solid pace of job creation was broadly in line with those in May and June, and outstanding business went up for the 19th month. What I like about long term chart of this indicator is that it above its variance limit and also indicating might be moving into a new trending channel. This would be a great positive for the markets.

Between FY18 and FY23, corporate profit registered a CAGR of 17.6% while India's GDP recorded a CAGR of 9.8%. Even during the period of 2020-23, corporate profit CAGR at 34.3% was significantly higher than the GDP CAGR at 10.7%.

Consequently, the corporate profit to GDP ratio rebounded to a ten-year high of 4.3% (long-period average of 3.7%) in 2022 as profits grew at a faster pace (49% YoY). However, the ratio dropped to 4.1% in 2023 as profits rose at a slower pace (9% YoY).

As per report by Fortune India, domestic earnings cycle has seen a significant turnaround after nearly a decade. Nifty exited FY23 with 11% earnings per share (EPS) growth, following a high base of 34% growth in FY22. However, earnings remained lopsided with BFSI driving almost the entire incremental earnings in FY23. I choose to view this differently because a strong performance by BFSI sector which has traditionally been the stronghold, it might percolate down to robust performance in other sectors, especially manufacturing.

After viewing macro data through unique set of parameters to extract data points one of the most important components of the Quant system is viewing various sectoral indices and individual stock charts, which are filtered with different templates having 25 custom indicators in total.

India VIX at 11.27, spiked up from historic low levels, however applying proprietary filters, there is no alarming indication as of now.

10 year GS India has been rallying continuously since October 2022 and currently is a rangebound consolidation mode, so this being a leading indicator has to watched.

This time I have checked a large number of charts and it seems a sectoral churn is in progress in the market. It is also indicating that sectors like housing, insurance, consumer durables, FMCG, agricultural machinery, agro- chemicals and chemicals might benefit. There is also indication that higher allocation is being attracted by mid-cap and micro-cap stocks. The challenge in mid and micro-cap stocks is to have a good grasp of fundamental information, which again can be quite a task to acquire.

The system buy / sell triggers are based on all the above and updated in MOCK PORTFOLIO SHEET.

DJIA (DOW JONES INDUSTRIAL AVERAGE): LAST CLOSE- 35065.00. System has triggered a buy at levels of 35065 to 34954, give or take 0.5%. Stop loss – 34415.0. This index has moved out of prolonged consolidation in progress since March 2022. Weather the rally is sustainable depends on myriad factors but what we discussed above seems in favour. There are no absolute answers in trading and investing world. Since Quant system has triggered a buy, I will stick with it. This is where mind will play games because how come system is indicating a buy when Fitch has downgraded recently.

Target 1 – 37194.0 , Target 2 – 40421.0, Leverage – 0.30x.

Minimum profit potential – 6.1% , Asset allocation profit potential – 1.8%.

Minor trend : Up , Intermediate trend :Up , Long term trend : Neutral with upward tendencies.

Stop loss – 34418.0, Leverage -0.2x, Target 1- 37194

NIFTY : Last close – 19517.0 . System buy trigger given on 25.03.23 has generated absolute profit of 15.18% till date. Market is in profit booking phase for now and further dips to 18900-19100 levels possible. Since 31.03.23 markets have been rallying continuously on weekly charts any profit booking. For now, markets have moved down from important Fibonacci resistance Also Fibonacci time zone is placed at 12.08.23, so congruence of time and price can be a powerful. combination. As per system readings profit is booked at these levels. We will watch for further triggers post profit booking phase.

NASDAQ COMPOSITE: :Last close – 13909.24. System buy trigger given on 20.03.23 has generated absolute profit of 19.13%. System is indicating to continue holding long positions, since there is no profit booking signal yet. Closing a position prematurely is a mistake traders / investors do often.

DJ WORLD INDEX: Last close – 522.57. It had broken out of prolonged basing pattern which was in formation since 08.04.22. System is indicating to continue holding position. Absolute returns 3.38%.

USD-INR: : Last close – 82.68. This currency pair has been range bound since October 2022 but there are 1st signs that it might move out of range. A descending triangle pattern which is nearing its 1/3rd mark from Apex, with narrowing volatility has to be watched carefully. The system had given a false trigger previously which was closed out with minimal losses. For now we have to wait.

MCX GOLD: Last close -59146.00. Gold is in prolonged consolidation mode. System buy trigger on 22.10.21 has generated absolute profit of 23.75% till date. Subsequent buy signals triggered before generated handsome profits. This is a long-term trade so requires patience. There is possibility of further buy triggers later. Stength in Dollar index is seen as negative for yellow metal but short term dips have to be judiciously utilized to buy Gold.

RECAP ON PREVIOUS MOCK PORTFOLIO TRIGGERS

1. TITAN: Buy trigger given on 25.03.23 gave system exit on 31.03.23 at 3004.05 generating absolute returns of 20.48%. I could not update earlier due to poor connectivity onboard my ship. Even if current closing at 2902.75 is taken it is 16.42% returns.

2. BHEL: Last close – 98.95. System indicates to continue holding position. Buy trigger given on 25.05.23 generating absolute returns of 20.82%.

3. KARUR VYSTA BANK: Last close – 124.65. Buy trigger given on 21.05.23 has generated absolute returns of 18.71%. The stock is undergoing a prolonged consolidation as per system. The system is indicating there might be strong rally post consolidation.

4. TATA COMMUNICATION: Last close – 1886.30. Buy trigger given on 29.06.23 has generated absolute returns of 19.18%. System indicates to continue holding position. Daily charts indicating profit booking but that is a buying opportunity as per system.

NEW SYSTEM TRIGGERS FOR MOCK PORTFOLIO

5. LIC: Last close – 658.50. System has triggered a buy at this price with stop loss at 603.0.

Target 1 – 712.0 , Target 2 – 797.0, Leverage – 0.20x.

Minimum profit potential – 8.1% , Asset allocation profit potential – 1.6%.

Minor trend : Up , Intermediate trend : Neutral with upward tendency , Long term trend : Neutral.

6. LEMON TREE HOTELS: Last close – 94.70. System has triggered a buy at this price with stop loss at 83.0.

Target 1 – 113.0 , Target 2 – 132.0, Leverage – 0.05x.

Minimum profit potential –21.10% , Asset allocation profit potential – 1.1%.

Minor trend : Down , Intermediate trend : Up , Long term trend : Up.

7. SBI CARDS: Last close – 881.20. System has triggered a buy at this price with stop loss at 802.0.

Target 1 – 975.0 , Target 2 – 1056.0, Leverage – 0.10x.

Minimum profit potential –10.6% , Asset allocation profit potential – 1.06%.

Minor trend : Up , Intermediate trend : Up , Long term trend : Up.

8. NMDC: Last close – 113.25. System has triggered a buy at this price with stop loss at 106.0.

Target 1 – 127.0 , Target 2 – 127.0, Leverage – 0.10x.

Minimum profit potential –12.1% , Asset allocation profit potential – 1.2%.

Minor trend : Up , Intermediate trend : Up , Long term trend : Neutral with upward tendencies.

9. MARICO LTD.: Last Close – 576.20. System has triggered a buy at this price with stop loss at 531.0.

Target 1 – 612.0 , Target 2 – 756.0, Leverage – 0.15x.

Minimum profit potential –6.2% , Asset allocation profit potential – 0.90%.

Minor trend : Up , Intermediate trend : Up , Long term trend : Neutral with upward tendencies.

RETURNS TILL DATE SINCE 04.07.20 : 100.32% (AS OF FRIDAY 04.08.23 CLOSING)

LEVERAGE FOR EXISTING TRADE RECOMMENDATIONS: 1.25

LEVERAGE FOR NEW TRADE RECOMMENDATIONS: 0.90

TOTAL LEVERAGE: 2.15

ASSET ALLOCATION PROFIT POTENTIAL FOR NEW TRADE RECOMMENDATIONS: 7.7%

TIME PERIOD OF TRADES RECOMMENDED : 15 DAYS TO 3 MONTHS.

MOCK PORTFOLIO.pdf

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