- New Science in old markets -

India drops into a bottom extension

One of the measures of the Indian stock market that we follow made a bottom extension today (overnight for most readers) and this is a reason to buy some. This is an ADR (American Depositary Receipt for those who hate acronyms) which is a way for US investors to step outside their domestic market while still keeping the comforts of home. The best way to take this trade is in another instrument  - one of the Indian domestic futures contracts, if you have access. There are two that seem liquid - the 'Nifty' and the Sensex. If you don't, buy this ADR:

India bottom ext + example

You can see from the ringed examples of prior extensions that our methods have worked exceptionally well in this market and that the best approach to that last bottom extension was to buy the day after the first signal, after a bit more weakness. This is our recommendation here too.

There is also a ring around the solitary compression signal in this chart (the blue bar) to illustrate two things:

  • A new move started immediately after the compression signal and the only way to catch that  downward move was to 'follow the break' by selling short on weakness the next day. This is normal.
  • There was a 'return to compression' at the point marked by the red arrow. This is a common phenomenon and we deal with it in the userguide. It happens because of the complex chaotic nature of markets and the spontaneous formation of 'attractors' that happens in complex systems. In markets these take the form of  compressions and it means that there is often a second chance to take a trade if the initial break is too quick or too big. In many cases that second chance is the better opportunity, as it was here.

We saw this 'short' trade opportunity but did not recommend it as there were capacity constraints in the recommended portfolio at the time. Now there are not.