Bank Nifty and Massive Dispersion in Nifty Raising Red Flags.....

Confusion acts as natural risk control measure for trader....
O Ashuji...

I have stated in my previous blogs why I believe August 2013 could be big movement month for equity markets. http://speculationanart.blogspot.in/2013/07/august-2013setting-up-for-big-move-in.html

In this post, I will discuss 2 factors that are flashing warning signs for Nifty over coming month/s.

1) Bank Nifty vs Nifty....
Bank Nifty accounts for significant weight in Nifty at around 22% (29% with HDFC). July so far has big divergence between Bank Nifty performance and Nifty. Bank Nifty is down 7.7%, while Nifty is up 2.5%. Historically, big divergence between Bank Nifty and Nifty has invariably resulted in big moves in Nifty (mostly on downside). I have taken historical cases wherein Big Nifty was down while Nifty was up.....

Let Data talk....

Bank Nifty vs Nifty (% moves)

Wider the divergence between Bank Nifty and Nifty move, greater the movement is likely to occur. Except August 2005 and December 2006, all other months had negative movement in the following month in Nifty. December 2006 shouldn't be considered because Nifty was hardly positive i.e. divergence is very small.

2) Dispersion in Nifty....
When heavy weight stocks are part of both top gainers and top losers, it is likely to be a negative divergence. Top 10 (out of 50) stocks in Nifty accounts for 70% of the weight . Larger the presence of these stocks in Top 10 gainers and Top 10 losers, closer we are to an inflection move.

Let the Data talk....

1) Green Shaded Box are stocks which are part of top 10 stocks in terms of weightage in Nifty. 

2) Look at wide dispersion of heavy weighted stocks in July both as part of gainers and losers. 


















Both factors - Bank Nifty vs Nifty and Dispersion in Nifty indicates BIG MOVE in August.