Sensex 30 – Risk Metrics

Now that we have streamlined India 30 ORMI ©  it’s time for us to work on a bigger challenge. Today we are introducing elements of the Sensex 30 ORMI ©. There are a few differences between the two indices.
1) India 30 can stay in cash if market conditions warrant. In 2008 it was 85% cash.
2) While Sensex 30 will always be invested.
3) India 30 is equal weighted.
4) While Sensex 30 is risk weighted.
On 08 June 2012 we introduced the Jiseki Cycles for Sensex 30. In this update we have added new elements to the Sensex 30 subgroup. We have added a Risk Matrix based on ranking, a risk matrix based on price, group analysis, ranking histograms and Jiseki cycles. The latest ALPHA goes about analysing the Sensex 30 components based on performance rankings and cycles and lays down a base for us to set risk based allocation rules. We will discuss our allocation rules for Sensex 30 in our later updates.

Risk Matrix (Ranking Trend)
In this matrix we have classified Sensex 30 stocks into four groups viz. Value Play, Weak, Stagnating and Strong. The classifications are based on three Jiseki rankings of weekly, monthly and quarterly. On the Y-axis is the absolute difference between Jiseki1 and Jiseki 2. E.g. Jiseki Weekly value is at 39, while Jiseki monthly value is at 38. The absolute difference between the two 1 (J1-J2 = 1). On the X-axis is the absolute quarterly ranking i.e. the value of Jiseki 3.
VALUE PLAY is when a stock has quarterly ranking less than 50 (J3<50) and the absolute difference between the Weekly and Monthly Jiseki is Positive. HLL is the only stock which fulfils this criterion.
A component is considered STRONG when quarterly rankings are above 50 (J3>50) and Jiseki weekly is greater than Jiseki monthly, (J1>J2). Our Jiseki cycles consider J1>J2, as a sign of positive trend.
STAGNATING is when though J1<J2 but quarterly rankings are still above 50%. A quarterly ranking above 50% suggests that the component is still in the upper half of group performance but has a negative short term trend.
However, when this STAGNATING components move in the lower half (<50%) of the group performance, the classification of the stock becomes WEAK. This is when the asset has J1<J2 and J3 (Quarterly) <50.
In the table below you can see that HLL is a VALUE PLAY because it is still below 50. This also suggests that HLL has more to go before it gets STRONG. Whether HLL becomes STRONG or not remains to be seen.
DLF, Hindalco, Wipro, Coal India, NTPC are still WEAK
TATA MOTORS intermediate Jiseki has turned back up (J1>J2) making it strong again. Other STRONG stocks are ITC, MARUTI, SBI, HERO MOTORS, TATA POWER, HDFC and SUN. Tata Power might seem an odd component here, but the very fact that the stock is still a quarterly outperformer, ranking at near 80 levels and is above the previous supports with short term Jiseki positive suggest that we might have a real performer here which is getting ready to deliver.
Market signals are a lot about confirmations and non confirmations. After we have laid down a trend perspective based on market performance rankings, we look at a signal confirmation using rankings with a price filter. The price filter tells us whether the multi week price trend is positive or negative.

Risk Matrix (Price Filter)
In this Matrix we have changed the X-axis to a price trend filter. If the value of the X-axis is above 0, the price is in an intermediate multi week positive trend and vice versa. Here as one can see, barring ITC, HLL, SUN and TCS all the rest of the Sensex 30 components are still in a negative price trend for an intermediate multi week time frame. This is one of the reasons we are not looking at a sustained reversal on Nifty and broad market yet.
Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.
Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.
Coverage India: CNX100, BSE500 traded stocks and Indian Indices.

Michesan Anna-Maria, discovered her interest of markets immediately after completing her graduate studies in Economics. She followed it up with post graduate studies in corporate finance. A host of research work in behavioral finance, option strategies and quantifying market sentiment followed. Anna covers Indian equity and combines Elliott, Time Fractals and Time Analytics to deliver accuracy across time frames.