Price Rising, VOLUME dropping and OPEN INTEREST dropping:
Market is running out of traders willing to open or hold an OPEN LONG. Traders are liquidating both loosing short positions and closing winning long positions. A higher probability the market is set to retrace in price lower at some point forward.
Should prices be falling when this scenario develops, the market has a higher probability of a price rise at some point forward.
Price Rising, VOLUME rising and OPEN INTEREST rising:
Market is attracting larger numbers of traders willing to open positions from the long side and hold them. Traders are more confident that prices will continue to climb in favor of a working long. This scenario is a good clue that UPTREND is secure and that the trend may continue further for a period of time.
Should this scenario develop while prices are falling, it is a good indication that DOWNTREND is secure and that the trend may continue for a period of time.
Price Rising, VOLUME dropping and OPEN INTEREST rising:
Market is attracting LATE buyers and EARLY shorts; market is vulnerable to a sharp correction but likely that that correction will be bought creating a buy point for UPTREND.
If this scenario should develop while prices are dropping, it is a good indication that a sharp rally against DOWNTREND will develop creating a sell point for DOWNTREND.
Price Rising, VOLUME rising and OPEN INTEREST falling:
Market has a lot of traders initiating from both sides but larger traders may be liquidating into the higher prices. The market may be vulnerable to large price swings as shorter-timeframe traders attempt to trade from both sides of the market but liquidating before end-of-day. Often a signal of a market turn near-term or continued volatility. More common at significant tops (or bottoms).
It’s my opinion that successful trading for the long term is not possible without a sound understanding of both trader psychology and market psychology. Often individual traders focus so heavily on the results they are seeking that they forget that every other trader out there is doing the same thing: attempting to profit from price action. But it is the very nature of this conflict that creates price action because it is physically impossible for every executed trade to show a profit once each contract executed is liquidated. Futures trading is structured as a zero-sum environment. This means that in order for a price to print, BOTH a buying order and a selling order must be matched at the current traded price; otherwise no trade happens and no new price will print. Therefore, the issue of potential price change from orders being placed and filled is what ultimately creates the price action traders are attempting to capture as a profit to their individual accounts. As competing orders are matched, resulting in EITHER more futures contracts initiating a new position or closing an old open position (regardless of profit or loss to an individual account) is the issue of VOLUME and OPEN INTEREST.
One of basics to better understanding VOLUME and OPEN INTEREST is to understand it from the point of view that it represents individual traders who all can’t be right as far a profit is concerned. Someone must liquidate to take a loss. Since most traders have a large portion of losing trades as their results over time; it follows that a lot of what is causing a price change MUST be losing trades being liquidated. By understanding that a large portion of VOLUME and OPEN INTEREST (when it changes) must mean a CHANGE in the value of someone’s account balance; it becomes a bit better to understand where and when a turn in the market might be coming. Why? Because the people who helped put prices where they are now may have left the market completely; someone else has taken their place or not—that person has a completely different point of view on the market price and he might be in the wrong place too. He will liquidate sooner or later as well. With that in mind, let’s discuss someone the basics of VOLUME and OPEN INTEREST.
VOLUME is the total number of contracts being trading for a period of time. You can think of VOLUME as the AMOUNT of orders passing through the market place as a total; most commonly calculated on a per day basis (daily VOLUME)
OPEN INTEREST is the total number of contracts that remain open and held through at least one trading day (Overnight at least) You can think of OPEN INTEREST as the number of contracts someone is willing to hold at least for a period of time needed to realize a profit or loss.
When VOLUME is HIGH; individual traders in large numbers are participating.
When VOLUME is LOW; traders are not participating to a large degree.
When OPEN INTEREST is RISING; traders are opening positions and assuming the risk that price will create a gain for them over at least one day.
When OPEN INTEREST is FALLING; traders are closing positions (liquidating) and they are EITHER accepting their loss or taking their profit.
The study of VOLUME and OPEN INTEREST is the study of “Who is participating and are they getting in or out with a gain or loss?” Discerning what this means to potential price movement coming over the next period of time forward is where VOLUME and OPEN INTEREST can be a good clue as to whether a market is ready to fall in price or rise in price.
Good Luck!
Hi,
It proved that we had polished bull run on friday. Market surprised all who were in impression of 5200 today. Yesterday recommended to buy 4800 PUT it doubled today.
NIFTY FUT OI up 1% with 2% decreasing volumes indicating unwinding of long positions and forming of fresh short positions too. NIFTY FUT will more weak till below 4830 levels. Aggressive NIFTY 5000 CE writing seen in today's Trade
NIFTY PCR: 1.19
Bullish stocks: RAJESHEXPO , NAUKRI
Bearish stocks: HINDUNILVR , TCS , JETAIRWAYS
NIFTY FUT OI up with increasing volumes indicating bit of long positions. Long might be from retailer side as we got habbit bo buy in GREEN.
BUY NIFTY 4800 PUT CMP 105.50
Bullish stocks: LITL, APIL, VOLTAS
Bearish stocks: SAIL, HDFCBANK, BEL, YESBANK
Take your own decision
Investment Bank Lehman Brothers to Sue Japanese Trading Firm Over Alleged Fraud
TOKYO (AP) -- Lehman Brothers is accusing a Japanese trading company of perpetrating a massive fraud and plans to sue it for hundreds of millions of dollars, officials at the U.S. investment bank said Sunday.
Lehman is seeking to recoup $350 million in defaulted loans, a company official said on condition of anonymity, citing the sensitivity of the case.
The bank loaned the money to a unit of LTT Bio-Pharma, according to Matthew Russell, a senior spokesman for Lehman Brothers Holdings Inc. The subsidiary, a medical consulting company, filed for bankruptcy March 19, leaving investors stuck with millions in outstanding loans.
Russell said that Japanese trading giant Marubeni Corp. secured the loans and should repay them. The company's Japanese unit, Lehman Brothers Japan Inc., will file a civil suit Monday at the Tokyo District Court, Russell said.
Marubeni said in a statement Saturday that it did not secure the loans, and documents to that effect are fake. It contends that it is also a victim of the alleged fraud and therefore should not have to cover any damages.
The company fired two of its employees after acknowledging that they may have collaborated with the fund's managers to forge documents, according to the statement. It added that Marubeni has filed a separate criminal complaint against the fund's managers.
"We have nothing to do with the fraudulent acts, and we have no obligation to cover any repayment requests," Marubeni said.
Russell said that his company has been "working closely with the (Japanese) authorities on a fraud it uncovered that was perpetrated by employees at Marubeni ... at the company's offices." He said Lehman is among "several financial institutions and other parties" that have been allegedly defrauded.
Russell said meetings were held at Marubeni's office to discuss its securing of the loans before the agreement was struck late last year.
"Lehman Brothers is confident that it undertook all the appropriate measures on the transaction," Russell said, adding that his company "is confident in its legal case and fully expects its funds to be repaid."
Officials of LTT-Bio-Pharma, its bankrupt unit and its lawyer were not available for comment Sunday.
Source: Yahoo Business
Aslowing US economy, moderating Asia, and a government keen to cool the pace of growth may take their toll on the Dragon that has been seething fire since 1997.
The third reading of the US GDP growth for the fourth quarter came in at 0.6 per cent annualised, on Thursday. This is the slowest growth since 2002 and pales in comparison to the third quarter growth rate of 4.9 per cent annualised. It is estimated that one percentage point slowdown in the US growth could cut 3.2 per cent from China’s export growth and will show up in the economic slowdown. Around 40 per cent of the Chinese GDP is accounted for by exports.
For February, China reported a 56 per cent drop in its trade surplus. China faced severe snowstorms in late January that coincided with the Chinese new year holidays in early February. Logistical issues may have impacted Chinese exports. But if the trade surplus does reduce in the following months, it would be a clear signal that Uncle Sam’s fever is giving China the shivers.
China faces an inflation which refuses to go away despite the CRR being hiked 15 times ? from 7.5 per cent in July 2006 to 15.5 per cent now. The People’s Bank of China, the nation’s central bank, hiked interest rates six times during 2007, with benchmark one-year loan interest rates at a nine-year high of 7.47 per cent. But those efforts have shown little effect on domestic inflation which is running at an 11 year-high of 9.7 per cent.
China’s economy grew by nearly 12 per cent last year, its fifth year of double-digit growth. Beijing plans to cut economic growth to 8 per cent this year from 11.4 in 2007, which is also likely to weigh on consumption.
China is the world’s largest copper consumer, guzzling an estimated 4.5 million tonnes every year. A large part of that is used domestically but a lot also gets exported, contained in products from tubes and power cables to air-conditioners. However, the country’s copper imports fell 5 per cent in February from the previous month and could see a further slowdown as stocks in warehouses double. Steel and aluminium fabricators are beginning to feel the heat of the US slowdown and domestic demand will further slow with the tightening of credit.
China is an emerging great power but it is still a toddler in squeakies when it comes to stepping into the large shoes of Uncle Sam. Compared to the $9 trillion spent by US consumers per annum, the Chinese spend a measly $1 trillion.
China’s eastern neighbour, Japan, is doing well but the sudden appreciation of the yen could hurt its exports. Though exports account for just 17 per cent of Japan’s GDP, exportoriented companies in the Nikkei have a weight of around 40 per cent, making the Japanese stock markets more sensitive to yen appreciation than the economy.
South Korea’s National Pension Service, the world’s fifth largest, has said that it is looking at greener pastures than the US treasuries which are seeing plummeting yields. Though the fund holds just $14 billion in treasuries, the redemption pressure is increasing the need to seek better returns elsewhere. This needs to be seen in the background of a meeting last week in which 16 Asian nations discussed the possibility of investing around $1 trillion in each other’s bonds.
Amidst large I-banks, Lehman continues to be in the centre of market speculation. In times like this, companies would reduce the balance-sheet size by selling assets and retiring liabilities. But in Lehman’s case, the balance sheet grew by 13.7 per cent in the last quarter and the gearing increased to 31.7 times.
This is not a good scenario. The world markets are still holding together, taking solace from the bold stance of the Fed that it will do whatever is required to save the US economy, even if it means buying any amount of questionable securities from ailing firms.
Source: SMARTSHARE (Vinod K Sharma) Business Standard
