July or August 2013 - BIG Move in NIFTY...??

Mind of Economists/Analysts can be compressed for long but not Price of Asset Markets....
O Ashuji....

Two previous blog posts puts reasonable effort in explaining concept of compression in asset markets and clustering of volatility.

1) Entering Volatility Globally....(28th Feb 2013)
http://speculationanart.blogspot.in/2013/02/entering-volatility-globally.html

2) Market Compression Reaches Extreme !!! (26 Dec 2012)
http://speculationanart.blogspot.in/2012/12/market-compression-reaches-extreme.html

The idea of this blog is to take one of the measure of market compression and understand the probabilistic outcome over coming months.

July or August 2013 - BIG Move in NIFTY....

Methodology

1) Absolute monthly returns for Nifty are analyzed. (Since 1991)

2) Absolute monthly returns are added over period of 4 months to arrive at a score. 

3) Score less than 10 is considered as compressed score i.e. price move on monthly basis is compressed. 

Results

1) There have been 5 periods (excluding March-June 2013) in which 4 Month Cumulative Score of Nifty (Absolute Return) has been less than 10. They were...Sep-Dec 1991, Jan-April 2004, April-July 2010 (also June-August 2010), April-July 2011, Oct 2012 - Jan 2013. 

2) Each of these periods were followed by big monthly moves. 

Absolute Monthly % Movement Nifty 

Nifty Returns Post Compressed Months

Conclusion

Cumulative score for Mar-June 2013 stands at 8, which indicates July or August 2013 could be month of big move for Nifty.