QUANT SYSTEM TRADE RECOMMENDATION - 04.06.22

From the desk of Capt.D.Ganesh Raja DATE: 04.06.22

Dear Friends,

It was wonderful 25th wedding anniversary celebrations by visiting our ancestral temple, touring down south and having a nice vacation. I had not watched the markets during this time since it was consolidation time and as I had already mentioned as per system we were in “No trade zone”. Immediately after coming back, I had to come to Abu Dhabi for my marine assignment. I got time and decided continue from where I left last.

I am only focusing on intermediate trend and not giving short term recommendation, unless I know for sure that I can monitor it closely.

10 year Government Security index continues to remain weak and need to wait for bottoming out. This being a leading indicator, does not augur well in the near term. India VIX is placed 19.98 and I am unable to draw any satisfactory conclusions.

Let us look at few of the factors which market is trying to resolve. The ongoing Russia- Ukraine conflict is causing lot of volatility. Also Fed has taken a hawkish stand to counter inflation. Inflation is a key factor watched by Feb and also RBI, which chose to hike rates on 4th May, with the RBI Governor stating that it was a “no brainer”. Aggressive purchases in the market should be deferred for near term or at least can make staggered purchases.

The annual inflation rate in India increased to 7.79% in April of 2022, the highest since May of 2014, and above market forecasts of 7.50%. Food inflation accelerated for the 7th straight month to 8.38%, a new high since November of 2020, with cost of oils and fats (17.28%), vegetables (15.41%) and spices (10.56%) recording the biggest rises. Additional upward pressure came from costs of transportation & communication (10.91%), health (7.21%), footwear (12.12%) and clothing (9.51%). The inflation stayed above the 2% to 6% tolerance limit of the central bank for the fourth month in a row, source: Ministry of Statistics and Programme Implementation (MOSPI)

I have looked into various other sectors to get an idea if any profitable trade can be identified. I am only talking about sectors where trade can be taken with reasonable accuracy and leaving out the other. The sectors left out of discussion means it doesn’t qualify based on system filters.

Nifty Pharma: This index is not in great shape. Nifty pharma is not directly traded in the F&O segment, so one can focus on stocks on stocks having highest weightage. Sun Pharma having a weightage of 22.6% and Dr Reddy having a weightage of 12.94% would be a good bet for shorting. I have indicated the price levels in the Trade recommendation below.

Nifty PSU Bank: This index has not reached anywhere close to the high of 4639.0 reached on April 2011 even during the stellar rally witnessed in the markets, though it has been rallying from lows of 1082.7 reached on 29.05.20. The present formation in weekly charts seems to be triple top, with a possible break of baseline. Please note that here we can have an ambiguity in interpretation of the chart which might look like consolidation after a rally, however the reward to risk ratio favours shorting this index. Thus piece of information does not a part of system but might help in understanding taking short position. I am sharing this for general understanding. PSU banks park most of their funds in government securities and last year the raked in huge profits when interest rates were at record low levels, but now the scenario is different due to the recent rate high by RBI and further hike expected to contain inflation. SBI having 76.4% weightage in this index would be a good bet.

USD-INR: Last close – 77.79. This currency pair has been profitable as per my recommendation to go long at 76.20 on 20.04.22. It seems as per daily chart part of the gains would be given up till 77.35, but since there is no sign of reversal as per weekly chart, continue to hold long positions. Further strength in this currency pair, that is weakness in the rupee is seen going forward I would not like to revise the target upwards till the first recommended target is reached, which is at 78.09.

This trade was taken at leverage of 2x and to be honest I had seen that part profit was to be taken at 76.84 on 28.04.22, which I could not update in time in the blog due to hectic schedule. The profits could have been inflated as of date stating leverage of 2x but that is not the intention of the blog, rather demonstration of its capabilities in a transparent manner. Trade Recommendation Sheet has been updated though.

MCX Crude: Last close- 9045.0. After reaching high of 9996 on 11th March 2022 it has been consolidating and seems that it will reach higher levels. I have been waiting all this while for this consolidation pattern to mature and hence giving the recommendation in crude now. It is recommended to go long at these levels of 9045.0 with the stop loss at 8511.0 .

Target 1- 10096.0, Target 2- 11922, Leverage - 0.3 x.

Minimum profit potential – 11.60%, asset allocation profit potential – 3.50%, leverage – 0.3 x.

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

NEW TRADE RECOMMENDATION

MCX Crude as stated above and in addition the following recommendations.

1. ACC: Last close - 2133.1. Recommended to go short at these levels with stop loss at

2230. 0.

Target1 – 2040.0, Target 2 – 1940.0, Leverage 0.1x.

Minimum profit potential – 11.60%, asset allocation profit potential – 3.50%.

Minor trend: Down, Intermediate trend – Neutral with downward bias, Long term trend – Neutral with downward bias.

2. SUN PHARMA: Last close – 855.10. Recommended to go short between 855-880 range with with stop loss at 905.0

Target1 – 822.0, Target 2 – 795.0, Leverage 0.15x.

Minimum profit potential – 3.90%, asset allocation profit potential – 0.58%.

Minor trend: Down, Intermediate trend – Neutral, Long term trend – Neutral with downward bias.

3. SBI: Last close – 464.50. Recommended to go short at these levels with stop loss at 486.0.

Target1 – 444.0, Target 2 – 416.0, Leverage 0.20x.

Minimum profit potential – 4.40%, asset allocation profit potential – 0.90%.

Minor trend: Neutral, Intermediate trend – Neutral, Long term trend – Down.

TOTAL LEVERAGE OF ABOVE NEW TRADE RECOMMENDATIONS: 0.75

COMBINED PROFIT POTENTIAL FOR ABOVE TRADES: 5.40%

TIME WINDOW OF TRADES: SYSTEM EXIT ONLY

TOTAL LEVERAGE INCLUDING UNCLOSED POSITIONS AS PER PREVIOUS RECOMMENDATION: 2.20

RETURNS TILL DATE SINCE 04.07.20 : 58.21%

TRADE RECOMMENDATION LOG.pdf

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