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Friday, December 31, 2010

New Year Greetings !








momentumsignal.blogspot.com

Wishes All 
A Very Happy And
Prosperous New Year ! 

Update for 31st December 2010

  Derivative Expiry Over, But What Now ?

Profit of 140 Points in the Last Trade : This author is happy to announce that, on expiry of the December series Nifty futures contracts, the last buy signal indicated by the Momentum Signal Nifty trading system has made a profit of 140 points. For non-regular readers of this blog, here is a retake. The last buy signal in the Nifty futures was indicated by the Momentum Signal trading system on 16th December, 2010 at the 5960 level. Since the contract expired at 6103, the long position has made a profit of 140 points in the December series Nifty futures. Now, here are the best things about the trading system. It comes free. It does not require any  registration or payments. Just check the updates to find when the momentum shifts and follow the trade management rules availble on the site. The Momentum Signal values applicable to various closing values / ranges of Nifty futures, S&P Nifty and BSE Sensex are also made available one day before the trade date.  

Nifty futures opened flat on Thursday and immediately went in to the positive territory. However, as is usual in these low volume low volatility markets, the gains were limited. The contract kept on trading below the  6090 reference level for most of the morning session. Unable to break above the 6090 level, Nifty futures also tried to test the supports, in the middle of the morning session. However, it recovered from the adjusted close of the previous day. In the last half an hour of trading, Nifty futures broke above the 6090 level  and closed at 6103.

     Nifty Futures - Intra-day Chart  

   

Thursday, December 30, 2010

Update for 30th December 2010

  At Last, A Close Above 50 DMA !

After spending a lot of time in a tight trading range between 5965 and 6065 for the past six trading days, at last, Nifty futures rallied on Wednesday. For the first time since the 16th of November 2010, Nifty futures have closed above the 50 day moving average ( 50 DMA ) as on Wednesday. Wednesday's market action seemed to be decisive, even though the rally still lacked good volumes. Even though the advancing stocks in the underlying index outnumbered the declining issues, the gains were mostly achieved by a handful of select blue chip constituents of the index. Nifty futures opened flat in the morning and immediately went on to test the reference level of 6030 - 6035. It spent some time trading around these levels. Once the futures broke above this level, a slow rally ensued till the swing high of 6065. In the dying minutes of the trading day, Nifty futures broke above this minor resistance and closed at 6074.50 which incidentally became the day's high.

    Nifty Futures - Intra-day Chart   



Wednesday, December 29, 2010

Update for 29th December 2010

   More Sideways Trading or What Now ? 


Some Random Comments - It seems that some random market commentary is in order, as the market has not been doing anything  interesting at all now a days. Most markets become moribund at this of the year because of the holiday season and the reluctance of fund managers to trade in the low volume  holiday markets. Therefore, Indian markets are also undergoing this seasonal trading pattern at present. However, the strange thing about the present day market is the weakness or the lack of participation of a whole lot of index stocks from as many sectors to participate in the current rally or upswing which started from the 5750 levels on 10th December, 2010. By the end of Tuesday's trading, it seemed that only stocks from the IT and Pharma sectors were upholding the index at these levels. Another broad sector, the commodities sector, which exhibited some strength recently,  too seemed to be loosing the strength. Now the question is - which is the sector or stocks capable of rallying further from here ? A cursory glance at the charts of most index stocks do not present much hope for a rally in the new year, unless the FIIs come in droves to buy in to the markets again !


    Nifty Futures - Intra-day Chart     

        

Nifty futures traded between the reference levels of 6000 and 6030 for the whole trading day. There is nothing more to write home about Tuesday's trading.

Tuesday, December 28, 2010

Update for 28th December 2010


 Some More Sideways Trading or a Test of Supports ?

Nifty futures opened flat on Monday and almost immediately in the opening session, it started to trade above the previous day's high as well as the swing high of 6043. As the up move could not be sustained at the higher levels of 6060, especially because of  some weakness seen in the commodity stocks, Nifty futures slowly traded lower and breached  the 6030 reference level in the afternoon session. The day's low was at 6005 and the close was at 6007. The intra-day chart of Nifty futures shows the low volume holiday trading of Monday. As the markets are still finding it tough to rise above the 6100 levels, we can expect some more sideways trading at the best, before the expiry. An alternative scenario could be a test of the 5940 area and to take it from there in accordance to the then behavior of the market.    

   Nifty Futures - Intra-day Chart       



Nifty Futures  - Daily Chart    


Sunday, December 26, 2010

Update for 27th December 2010

   Nifty future Closes at the Swing High, Now What ?

In the last posts of the previous week, this author had indicated that Nifty futures may trade sideways in the low volume holiday market, with a mild positive bias. Last Friday, Nifty futures opened slightly lower  than the previous day's last traded price and almost immediately recorded a low of 5966. This low was 5 points below the previous three trading day's low at 5971. Since low volume holiday markets are liable to record freak trades, this author had also indicated that traders may carefully observe any breach of the three day  old narrow  trading range as well as the breach of the inside day candle of Thursday. Now let's check the intra-day chart of Nifty futures to find what happened on Friday.  

   Nifty Futures - Intra-day Chart    

Friday, December 24, 2010

Merry X'mas !

 

  momentumsignal.blogspot.com
   Wishes All Readers   
Merry Christmas 

Update for 24th December 2010

  Holiday Trading At It's Best ?

In the last update, this author had indicated that market may trade in the sideways to mildly positive mode on Thursday. As expected, Nifty futures opened flat on Thursday.  But the expected test of the 6030 levels petered out at the previous day's last traded price of 6012. As any market in a holiday trading mood wont to do, Nifty futures too traded sideways for the whole trading day. The day's low was at 5981. The low of 5981 ramained above the lows of the previous two trading days. The last trade was at 5996. The following intra-day chart of Nifty futures shows the low volume listless trading seen on Thursday. 

   Nifty Futures - Intra-day Chart   


Thursday, December 23, 2010

Update for 23rd December 2010

      Nifty Future Finding it Tough to Hold on to Gains ?


As expected, Nifty Futures opened higher at 6025 and within a short time of trading, it went above the 6030 reference point. It seemed that Nifty futures may trade higher in the process of testing the highs. However, the markets seemed to be stalling just above the 6030 mark, with lack of enthusiasm to trade higher indicated by  low volumes.  After spending almost an hour above the 6030 mark, the Nifty contracts traded below the 6030 mark. Till around the 1.30 PM mark, trading remained inside a narrow range just below the 6030 level . However, when the European markets opened and later traded mildly in to the negative territory, Nifty future too started to trade lower. The market heavy weight stock, Reliance seemed to be leading the ensuing fall on the back of news related to some cost escalation in the gas production business. Banking sector also seemed to be making losses for the day. Nifty futures recorded a low of 5977 in the mid afternoon mini sell off. However, the selling stopped before the futures pierced the previous day's low of 5970. The contracts recovered some of the losses and closed for the day at 6012.

     Nifty Futures - Intra-day Chart    



Tuesday, December 21, 2010

Update for 22nd December 2010

     Nifty Future Closes Above 6000 !  

On Tuesday morning, most Asian markets were trading in the positive territory at the opening time of Indian stock markets. Nifty Futures opened higher at 5976 on the back of the positive momentum from it's Asian counterparts. It also recorded the day's low of 5970 at the opening itself. On the back of some new found strength seen in the banking stocks, Nifty future advanced to test the present swing high of 6000 in the first hour of trading. It succeeded in crossing the 6000 mark but further advances were not easily forthcoming. As such, it traded in a very narrow range of 20 points between the 6000 and 6020 marks for most of the trading day. The day's high was at 6022 and the close was at 6014.

   Nifty Futures - Intra-day Chart   



Monday, December 20, 2010

Update for 21st December 2010


    Nifty Future is Still in the Sideways Mode !  

After the long weekend, when the indian markets were opening for the new week, Asian markets were trading with losses on the back of tensions in the Korean peninsula.  The SGX Nifty future was also quoting below the previous close. Accordingly, Nifty futures too opened lower near the lower reference point at 5900. Trading remained between the  5900 and 5940 reference points in the first two hours of the trading day. But the recovery rally after the gap opening continued even though the Nifty contracts encountered some minor selling at the 5965 and 5990 levels. The day's high was at 6000. But the afternoon session saw a mild correction when Nifty futures traded lower to reach 5950. The close was at 5953. 

   Nifty Futures - Intra-day Chart    

Sunday, December 19, 2010

Update for 20th December 2010

    Nifty Future Poised at an Interesting Point !  

In the last update for 16th December, we had stated that Nifty future is primarily trading in a 200 point range between 5800 and 6000 and not much reasonable analysis is possible. We had also stated that the outer or broad limits of this range are at the 5700 and 6100 levels. It was also stated that the incidence of the 100 day moving average ( 100 DMA ) coinciding with the reference level of 5860 is important.  Now let's check what happened  in the last Thursday's trading session.

   Nifty Futures - Intra-day Chart    



Thursday, December 16, 2010

Surviving in the Trading Jungle !

Why Do So Many Smart People Fail in Trading ?   


Here is a secret ! In fact it is not a secret ! Majority of traders make losses. Among investors too, most make less than the average returns made by investing in an index like Nifty or BSE Sensex.  But not many people talk about it in the open. But why ? Everybody likes the winners, OK ?  We always hear about the super profits !   And no one talks about the losses. 

The first reason for major losses is the over confidence in one's trading ability. Another reason is the absence of trading discipline and stop losses. However, the most important reason for a  blow up or total ruin of the trading account is relatively huge trading ( leveraged ) positions.  Here is an article on how to prevent the total blowup of your trading account !  It may not make you a super trader overnight. But it will certainly help you to last longer in the trading game till you learn the trade !!

Happy reading over the long week end !

Click Here to Read the article on Preservation of Trading Capital, Money Management and Position Limiting

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Wednesday, December 15, 2010

Update for 16th December 2010

   Nifty Future Declines On Bear Raid !  

It seems that the season of scams is here to stay. On Wednesday too, there were reports about new CBI raids related to the ongoing 2G scam investigations. It seems that bears also have made it a habit to raid the Dalal Street on all days some CBI raids take place. It also seems that the market is more susceptible to bad news now a days, may be because of the extended valuations and the questionable governance standards employed by many a corporates. 

On Wednesday, Nifty futures opened at 5951, just 7 points below the previous day's last traded price. Immediately after the open, it sold off to trade below the reference level of 5940 and almost reached the lower reference level at 5900. Since the contract sold off without trading at the previous close or the last  traded price,  a recovery ensued by around the 11.00 AM mark. However, the recovery failed after reaching to a high of 5955, thereby leaving very small subtle gap between the day's high and the previous close. Regular readers of this update might be familiar with this kind of subtle gaps which at some times indicate further weakness in the markets. However, such gaps may not have much predictive ability in range bound markets. Trading remained range bound in the 5900 to 5940 area till around the 1.30 PM mark. However, when European markets too went in to the negative territory, Nifty futures too broke the 5900 mark to record a low of 5873 in the afternoon session. However, the close was at 5896.  


  Nifty Futures - Intra-day Chart   

   

Tuesday, December 14, 2010

Update for 15th December 2010

   Nifty Future Advances Further ! 


On Tuesday, Nifty futures opened exactly  where it closed on the previous day at 5931. In the initial phase till around 11.30 AM, the contract traded sideways mostly and kept itself below the resistance of 5940. It broke above the 5940 mark just after the announcement of a lower inflation figure. However, even after the breakout, trading remained mostly sideways. The day's high and low were at 5970 and 5906 respectively. The close was at 5959. The overhead resistances at  the 6000, 6030 and 6090 levels still remain valid. The following intra-day chart of Nifty futures show the two phases of Tuesday's trading, both before and after the declaration of inflation data.


  Nifty Futures - Intra-day Chart   
  



Nifty Futures - Daily Chart        




Monday, December 13, 2010

Update for 14th December 2010

  Nifty Future Recovers Further, But Resistances Still Remain ! 

The last post indicated that "last Friday's green candle with it's open below the previous candle's body and a close which was above the 50 % mark of the previous red candle's range indicate the support at lower levels and even a short term reversal." It was also reported that the overhead resistances remain at the 6030 and 6090 levels and until these resistances are broken, the pattern of higher high, lower low and lower high may remain. Nifty futures opened on Monday with a freak trade at 5985, even though the actual opening rates were exactly 100 points lower at 5885, near the previous day's last traded price.  Since Nifty futures never actually traded up to the freak rate of 5985 on Monday,  the daily high  stands corrected to the actual high of 5940. All charts on this site are prepared using the corrected open and  high prices and therefore, these charts may differ from other automated charting services. The intra-day chart of Nifty futures also shows the open at the 5885 area.



  Nifty Futures - Intra-day Chart     



Sunday, December 12, 2010

Update for 13th December 2010

 Nifty Futures Recover to Close Above the 100 Day MA !

The last post conveyed that the Indian market is going through a peculiar situation on the back of the rumors and other pieces of bad news and therefore, any clear analysis of what happens on a particular  a trading day is beyond anyone's capability. However, it was also clearly stated that Nifty future has 'some support at the 5725 to 5750 area being the previous low and from the top line of the  previous trading channel.'  The indicated reference points  for Friday's trade were at  5650, 5750, 5830, 5860 and 5900. The intra-day  chart of Nifty futures is given below to examine the last Friday's market action.


  Nifty Futures - Intra-day Chart     



Friday, December 10, 2010

Update for 10th December 2010

Nifty Futures Close Below the 100 Day MA !

The last post was titled "Nifty Heavy Weight Stocks Also Turn Losers !", but this author couldn't have anticipated the kind of  losses suffered by the market on Thursday. Even though the previous posts could report about the lack of volume, all round negative market internals and a deteriorating Put Call Ratio ( PCR ), the losses were beyond expectations. It seems that the excesses of the recent bull market and especially the operators and FII led the vertical rally from the  5550 level to the previous high of 6300 plus levels, is being set right by the market now. Now, on observing the all round losses suffered by many traders and investors, this author is forced to reproduce some quotes from the post dated  9th September, 2010,  which talked about the then bull fury and it's possible excesses and after effects.       


Excerpts from the post dated  9th September, 2010

"Any breakout above the trend channel may be associated with a mad scramble to get in to stocks by the retail crowd. The tipsters and talking heads will have their time in the lime light. Analysts will start finding new reasons for buying stocks at high prices.  Euphoria will prevail. And no resistances will stand in the way of the mad bulls. All the dud stocks may become the favorites of the masses once again. And when the  bubble bursts, another set of traders and investors will learn their stock market lessons. ( To read another short description of this scenario, click here to read the post dated 23rd August, 2010. )   

To those readers who might  be wondering why this blogger is hell bent against another super duper rally in the stock markets, let it be made clear that this blogger is not hell bent against any rally or otherwise.  It is only because this blogger likes an orderly stock market which leaves some scope for appreciation for the buyers in the long term. If the market overshoots on the upside, it will lead to all kinds of non sustainable investments and this in turn will lead to bad markets tomorrow. Higher stock prices makes dubious companies raise capital for questionable  projects which will fail at the first signs of economic hurdles. In the end, an overpriced market is as bad or far worse for the economy than an under priced market. In fact bubbles leads to wealth destruction than the claimed wealth creation."

  Nifty Futures - Intra-day Chart     

Wednesday, December 8, 2010

Update for 9th December 2010

Nifty Heavy Weight Stocks Also Turn Losers !

It was reported in some of the previous posts that market lacked volumes at just above the 6000 mark of the Nifty Index. It seemed that trading at the recent top was very sluggish and lacked enthusiasm. It was also opined that Nifty future may try to move out of the narrow range in the early part of the week. The last two  posts also reported that market internals, as seen by the advance decline ratio, seemed to be very negative and traders may exercise caution. It was also stated that a reentry in to long position is not advisable because of  added risk. The Nifty heavyweights seemed to be unaffected by the overall negative market mood on the back of the new found strength in the oil and other commodity stocks. Even though Nifty future was expected to test the 6030 level as indicated in the previous post, finally, the prevailing negative mood caught up with the Nifty heavy weight stocks too, on Wednesday.  By the time market opened on Wednesday, the late positive momentum of  previous day seemed to have been vanished in to thin air. Nifty futures opened some 35 points below the last traded price because of the negative indications. The open remained as the day's high and the morning session's trading was mostly centered around the 5940 reference rate. 


 Nifty Futures - Intra-day Chart    


Update for 8th December 2010

  
  The Break of Low Also Fails and Now What ?

In the previous post it was opined that Nifty future may continue with the downward movement seen on late Monday and try to test the 5940 support below. However, it was also mentioned that even if the futures contracts trades down to the 5940 levels, it might still be in the positive momentum area. As expected the futures traded down on Tuesday after opening slightly higher at 6005. However, the expected test of 5940 ended at a higher point at 5956, on the back of the strength in the Reliance stock and other commodities stocks. However, the market breadth remained negative with widespread losses in the banking, mid and small cap sectors. As the Nifty future is still trading in the positive momentum area, it recovered at the second half of the trading session.


Nifty Futures - Intra-day Chart     



Tuesday, December 7, 2010

Update for 7th December 2010

   A Breakout, It's Failure and What Next ?


It's been proven again that support and resistances can be found out only by keen observation of the market action and not by applying any simple mathematical formulas as advised many others. It was being indicated on this site that Nifty future has resistances at 6030 and 6090 levels for the past three or four trading days. Now, please check out what happened in trading in the last three days. Nifty futures traded below the indicated resistance of 6030 for most of last Thursday and Friday and the daily highs were very near to 6030. And on Monday, Nifty futures broke out above the 6030 level and went straight to the next resistance of 6090 and recorded a high of 6094. The buy signal originated by the Momentum Signal trading system in the Nifty futures at the 5982 level as on 1st December 2010 achieved a maximum favorable excursion of 110 points. Or put in simple English, the long  position entered at 5982 could have been sold at the 5090 resistance level leading to clear profit of 100 Nifty points.  


Nifty Futures - Intra-day Chart        

Sunday, December 5, 2010

Update for 6th December 2010

 

   Two Days of Indecisive Trading and What Now !  

As part of the scenario analysis given in the last Friday's post, it was stated that if the Nifty future was unable to cross the previous day's high, it may try to revisit the 5860 support or even lower levels. However, this scenario was expected only in the absence of positive international cues. In spite of the western markets continuing their uptrend, Nifty futures opened flat on last Friday and enacted a part of the scenario by trading below the previous day's low. However, the positive international cues prevented the Nifty future and the index heavy weights from  losing much on Friday.  The advance decline ratio showed a very negative picture on Friday because of wide spread losses in many stocks. The market also lacked volumes on Thursday and Friday, may be because of the lack of enthusiasm ( ? ) to trade at the present levels. 

 
Nifty Futures - Intra-day Chart        


The intra-day chart above shows the lackluster trading  seen on last Friday. The upper horizontal line show the 6030 resistance area and the lower, the low of last Thursday.

Friday, December 3, 2010

Update for 3rd December 2010

   Nifty Future Ends Higher, But Ends Flat Intra-day !  

Nifty future was expected to open higher on Thursday on the back of the fresh buy signals in the contract and the BSE Sensex  and also because of the overnight rally in the European and US stock markets. The last post indicated that the immediate higher resistance above the market is at 6030 level. Therefore, Nifty future opened higher but remained just below this level not only at the open but also for most part of the trading day. As the futures found it difficult to cross the resistance, especially after a fast and significant rally in the previous two trading days, it tried to test the previous day's last trade or at least the previous day's high. This test ended exactly at the previous day's high at 5991. Since the trading was confined to a tight range, the futures tried to test the highs as well as the 6030 resistance at the fag end of the trading day. It partially succeeded in breaking the resistance but  closed below the resistance at 6026. Now, lets check the intraday chart of the Nifty futures to find why this might have happened and also to understand an intraday day trading technique which could be used in very narrow ranged markets.

Nifty Futures - Intra-day Chart        

Thursday, December 2, 2010

Update for 2nd December 2010

  December too Starts with a Bang !  


We stated in the last post that a test of the 5940 area by the Nifty future was expected, since the market  is bouncing from the 100 DMA and it had already tested the breakout point of 5865. It was also stated that closes above the 5940 level will indicate trend reversal as it will lead to the Nifty futures going back to  the previous trading range. Now both these conditions have been met and it can be considered that the present downtrend has finished. Or put in other words, it has become a buy on decline market. 
Nifty Futures - Intra-day Chart   
    

Wednesday, December 1, 2010

Update for 1st December 2010

  Nifty Future Breaks the Resistance at 5865, But 5940 Stays ! 


The last post indicated that since the Nifty future was unable to surpass the two day high at  5865, the contract may  test of the lower end of the trading range before trying to break above this reference point. It was also indicated that Nifty future has support at the 5750 to 5775 area and the top end of this support also coincides with the 100 day moving average. Now, let's check what happened during  Tuesday's trading. Even though the contract recorded an open of 5850, the actual trades in the initial minutes were below the 5820 levels. It is normal for markets to trade in very flat ranges before the announcement of any major market moving economic data. As the second quarter GDP data was  due by 11.00 AM, Nifty futures traded sideways till that time but stayed inside the tight range between 5915 and the previous day's low of 5788.


Nifty Futures - Intra-day Chart    


Tuesday, November 30, 2010

Update for 30th November 2010

  Nifty Futures Face Resistance at 5865 !

In the update for 29th November, we had stated that in the absence of any fresh negative news and the if the Ireland bailout announcement is made as expected, these factors may pave the way for another retest of the 5860 level by the Nifty futures. It was also stated that in case of any fresh break out of adverse news, especially about any market manipulation with the bank borrowings, the downtrend continue for the time being. By Monday morning, there were not much new negative news and the Asian markets were trading mostly flat to positive. The SGX Nifty contracts were indicating a positive open too. As such, the Nifty futures opened some 28 points higher from the last traded price at 5800. This open was at the midpoint of the previously indicated reference levels of 5820 and 5775. The futures immediately traded to the 5820 area and from there, it tried to test the previous day's last traded price as well as the lower reference level of 5775. 

Nifty Futures - Intra-day Chart   


Monday, November 29, 2010

Update for 29th November 2010

  Will the Market Hold on to the Support of 100 DMA ?

The Indian stock market is in an intermediate term downtrend. This is a fact because many popular stocks were already  declining even before the start of the present downtrend. The pace and magnitude of the selling and the bunched explosion of negative news were beyond the expectations of most investors. We had indicated in the post dated 13th November that the market may get support at the 100 DMA at around the 5750 levels,  even though we were unaware of any reasons for the continuation of the down trend  at that  time. However, it was stated that the downtrend may continue for some unknown reasons. Last Friday's sell off in the first half even seemed to indicate that there are no reason for the stocks to trend upwards. However, any uptrend can  be confirmed only when the market starts to form higher lows and higher highs in the first step and then, the low stays. 
 

Nifty Futures - Intra-day Chart  


Friday's  intra-day chart of Nifty futures is marked with the important reference levels indicated in the post dated 26th November, 2010. Nifty futures opened between the 5820 and 5860 reference points. The initial test upwards ended just above the 5860 level and the sell off from there, traded through the 5820 level to

Sunday, November 28, 2010

Speculative Bubbles


  Why Asset Price Booms are Bad ?


The Indian stock market investors are supposed to be enjoying one of the best stock rallies for the past two and a half years. The current stock rally had it's origins in the month of  March 2008. The major market indices, S&P CNX Nifty and BSE  Sensex recorded new all time closing highs in the first half of November 2010. However, a cursory look at the stock charts of some popular shares from the Nifty index selected randomly show a very different picture. It is seen that these darlings of the 2008 boom have not done anything in the recent rally to justify the investor's faith in them. Let's examine the charts of  these randomly selected  Nifty companies to see whether any similar patterns can be seen. The period of these charts starts from July 2007 and ends  as on 26th November 2010 covering the peak of  the previous boom and the recovery so far.


RCOM - Weekly Chart July 2007 - Nov 2010



Friday, November 26, 2010

Update for 26th November 2010

 Scam and the Derivative Expiry Lead to Another Sell Off !!!


In the last update for the just ended trading day, based on the then positive overseas cues and the option open interest positions, we had indicated that Nifty future may try to trade towards the 5900 strike and close near or around that strike. However, it was not to be. The November series Nifty futures expired exactly a strike lower at 5800, even though it seemed till 3.00 PM that the expiry could be at the higher indicated strike at 5900.  

Now a few words on the just concluded derivative expiry. It is so difficult  to believe that the market is not managed on the derivative expiry after observing the strange movements which starts at 3.00 PM and which literally forced the Nifty index to close exactly at a round option strike price. In a normal market situation how much probability is there that the half an hour average of an index ends up within less than 0.25 paise of a round option strike at 5800 ? And that too after the index falling 20 points below the round figure and then rising exactly 40 points to end up at 20 points higher than the strike at 5820. This author drops off the subject with a comment : '"Yeah, strange things happen !!! " 

Nifty Futures - Intra-day Line Chart  


Thursday, November 25, 2010

Update for 25th November 2010

Another Scam and Another Sell Off !!!

In the last update it was written that the below normal Put Call Ratio ( PCR ), new call writing and overnight losses in the western market may hinder the Nifty futures' second great escape before the expiry on Thursday. It was also indicated to traders that the reference levels for intra-day real time technical analysis of Nifty futures are at 6000, 5965, 5940, 5875, 5860 and 5820. 


This seems to be a season of scams. And it seems that there is no lack of negative news for the market to sell off day by day. On Tuesday, it was the Korean war clouds. And on Wednesday, it was a turn of corruption and alleged loan scams. There were some unconfirmed news reports over the weekend about some shortages in some of the older annuity schemes of LIC and of some kind of investigation on against investment professionals of LIC. However, it was never felt that the issue might lead to a sudden sell-off of the financials as happened on Wednesday.

Irrespective of the news, a trader following the earlier reference levels could have traded  very profitably on Wednesday. The intra-day market action of Nifty futures is captured by the following chart with the earlier mentioned reference levels.

Nifty Futures - Intra-day Line Chart  


Wednesday, November 24, 2010

Update for 24th November 2010

Great Escape II, But Will it Last ?


It is said that no trader can control the market and therefore, what a trader can do in preparation of  trading is to decide about what he will do as when market undergoes through or acts in accordance with the various anticipated scenarios. Here is an example which would have  turned in very good profits in Tuesday's trading. Sell Nifty futures if futures falls below the 5940 reference point and stays there. The reader might be curious why this is brought up now. Some selective quotes from the previous update will solve the problem. And here are the quotes :

"In spite of the recovery and a close above the major support of 5940, the fact remains that the market is still in a down trend and the latest close is still in the bear territory. Even though the European markets were trading positively when the Indian markets closed, the western financial stocks and commodities were losing in the overnight trade on the back of increasing fears about the sovereign debt problem and the bail out of the Ireland economy. Therefore, another retest of the support below and even a resumption of the downtrend itself can not be ruled out as of now." "Therefore, traders may watch the market action near and just above the highs of Monday's candle as well as at the support level at 5940 - 5950 on Tuesday, depending upon the market conditions to gain insights on trading." 

The first quote was given as the background information. The second quote was about the two anticipated scenarios of strength and weakness. However the required trade action was not included for want of real time  knowledge of the available market conditions. Let's sum it up ! " Let the market do it's thing ! We are prepared to do our thing ! "

Nifty Futures - Intra-day Line Chart 


Tuesday, November 23, 2010

Update for 23rd November 2010

Nifty Future Escapes Unhurt for the Time Being !!!


Last Friday, Nifty futures closed at a two month low below the support level of 5940. Even though this blog had pointed out that the sudden break of the support and a resultant sell off was of unknown origin and was related to the then evolving fluid situation on the political front,  it was still doubtful  to make a firm call about the immediate market direction. Hence it was pointed out that traders may observe the market action between the 5940 and 5950 levels of the Nifty futures to get a better idea of the market direction. It was also stated that if the Nifty future sustains above this resistance area, it may test the 6090 - 6000 minor resistance very easily.

Some readers might be curious why the past intra-day action is described almost regularly in the posts. The only reason behind these descriptions are the fact that these kinds of analysis is a great help in learning the process of real time analysis of market action.  

Nifty Futures - Intra-day Line Chart


Sunday, November 21, 2010

Update for 22nd November 2010

Nifty Futures' 5940 Support Broken At Last

Last Thursday, Nifty futures pierced the almost two month old support at 5940 by some 15 points and rallied 120 points. Since the bounce was from a major support it was expected that it may extend to some more time, even though the resumption of the downtrend was not all ruled out. As such it was indicated that Nifty futures may test at least the immediate resistance at 6080 - 6090 levels. However this expectation was belied by the market action on Friday. Now, let's examine this episode for any key takeaways or lessons. The first point to be considered is that it is always better to trade in the direction of the dominant trend which at this time is downward. The second lesson is that even if we enter in to a counter trend trade, it should be managed with very tight stop losses and any profit should be protected either by part booking or by hedging. The third lesson is that only the most nimble traders should enter in to a counter trend trade and the position limit should either be lower or to be reduced after entering in to the trade.  The fourth general lesson is that all supports and resistances will break after being utilised or misutilised many times. 

The so called subtle gaps ( so called because this author is not aware of any other name for the said incident in the technical analysis literature )  have been explained on various posts on this blog. At the cost of repetition, here is the explanation once more !  Generally speaking, major indices like Nifty, Sensex and it's derivatives like Nifty futures reaches the last traded price or/and the adjusted closing price of a day on the following day. Now if the last traded price or the closing price is not reached on the following day, it leaves a so called subtle gap. These subtle gaps are not very common in the Indian context. Experience shows that such subtle gaps occurring at or near the rally highs have indicated imminent weakness and corrections.

Nifty Futures - Daily Chart 


Nifty Fundamentals Revisited

The Market isn't Galloping Away, Why ? 

Indian stock market seems to be in the threshold of a correction after going through a strong rally. This rally   raised the stock prices to very expensive levels on the back of  the relentless FII buying helped by the cheap overseas money and a rising Rupee. On a point to point basis, both the major stock indices, Nifty and BSE Sensex have not been able to surpass their intraday highs of January, 2008 in the recent rally. This post attempts  to take a look at the reasons for the non-performance of the stock market  in the entire past three years from the point of view of the trailing fundamental valuations. 

Indian Stock Indices - All Time Highs


The above table shows the all time highs of Nifty futures, Nifty Index and BSE Sensex during the period. The table shows that new closing highs were achieved during the recent rally. Now, let's make a comparison of the trailing fundamental valuations of the S&P CNX Nifty Index at these market tops.

Nifty Index - Trailing Valuation Comparison 

Friday, November 19, 2010

Update on The Ultimate Momentum Signal - 19th Nov. 2010

Nifty Futures Rebound From Support at 5940 - 5950 !!! 


Just as this blogger had written in the last post titled "Nifty Futures Approaching Support at 5940 - 5950" , Nifty futures rebounded from the support area on Thursday. The Asian markets were trading with positive bias as indiacted in the previous post when the trading opened in the Indian markets on Thursday. However, a bout of selling which came about in the banking stocks on the back of some doubts about the exposure to micro finance and real estate sectors lead to the Nifty futures' fall to the previously indicated support area. Depending on the entry point, the sell signals indicated at  6084 and again reiterated at 6134 levels have lead to maximum favourable excursions ( read possible profits ) of 169 and 209 points. Even if the positions were covered at the earlier widely known support at 5940, it would have yielded to net profits of  140 and 190 points.  Even if a trader would have strictly followed the system rules and set up the trading stop at 5049, against the short in Nifty futures,  even then  it would have earned handsome profits. And if a long position was established at the support at 5940  expecting the bounce as indicated in the previous post, it also would have gained another 100 points on Thursday itself.

 

Thursday, November 18, 2010

Update on The Ultimate Momentum Signal - 18th Nov. 2010

Nifty Futures Approaching Support at 5940 - 5950 !!!

The last post was titled ' The Rebound is On !' expecting a small rally and at least, a test of the next resistances at 6175 because of the sharp fall happened in the Nifty Futures in a short  time of just two days. Even though the rebound started a bit earlier than expected, it's demise was also equally early.  

Last Tuesday, Nifty futures opened flat at 6128 and almost immediately sold off by around 30 points to record an intraday  low of  6100. Since the Nifty future was still in the recovery mode, this sell off was bought by traders initially. However, the rally from the 6100 area only barely touched  the previous day's last traded price at 6134.

Nifty Futures - Intraday Line Chart 

Original Picture Source : NSE India 

Tuesday, November 16, 2010

Update on The Ultimate Momentum Signal - 16th Nov. 2010

The Rebound is On !!!

In the last post, it was mentioned that the fall has already traveled a long distance and as such, traders may look out for a rebound from the lower supports. Even though the lower supports mentioned were at the 5940 to 6000 levels, it seems that, Nifty future has already started the rebound from the higher support levels  between the 6050 - 6090 levels. Now let's see how this reversal could have been identified in the intraday time frame.  

The chart below is a snapshot of the intraday chart of the Nifty future and the underlying index available to the public from the NSE, India website. The chart shows the trading of the morning session till 12.00 Noon. The dark brown line indicates the Nifty futures and the orange line represents the Nifty index. As the chart shows, Nifty futures opened flat and sold off almost

Nifty Futures - Intraday Line Chart

Original Picture Source : NSE India 

Sunday, November 14, 2010

Update on The Ultimate Momentum Signal - 15th Nov. 2010

Is This an Intermediate Term Correction ?

The out of the blue sell off encountered by the Indian stock market in the last two trading days of the past week has already taken out all the gains which came in the Diwali week. It seems that a lower than expected IIP number and some poor quarterly results have added fuel to the fire. Now the important question before the traders and the investors is that whether this sudden sell off is a precursor to an intermediate term correction. 

Last Friday, Nifty futures opened slightly below the previous trading day's range and  a morning's intraday  low of 6185 was established. This low was just above the 6175 support as shown in the daily charts of the Nifty futures. The recovery from this low went above the initial highs of the day and reached 6241 before noon. However, the recovery to the previous day's last traded price seems to have been used by the market participants as a selling opportunity. The market slowly went in to a slide from this high on the back of  the losses in the international markets. The lesser than expected  IIP data seemed to be adding to the woes of the market. As the trading progressed, the selling accelerated with high volumes and Nifty future recorded it's low of 6074 in  the last minutes of Friday. The last trade was at 6084.


  Nifty Futures - Daily Chart     


Saturday, November 13, 2010

Nifty Heavies Revisited !


The Nifty Heavy Weights with the Best Momentum !!!

After an amazing rally to the stratospheric levels in the Diwali week, it seems that an out of the blue correction has set in, in the stock markets. It seems that equity markets all over the world are going in to the correction mode together. In case you were waiting for a correction to enter in to the stock market, the question is whether you have a stock shopping list ready ! Notwithstanding the fact that stocks  are still over priced, this analysis of the ten most important Nifty heavy weight stocks takes a look at these stocks on the basis of the recent momentum. The assumption behind this limited analysis is that the immediate momentum is liable to be persistent and on any recovery of the market, these momentum stocks will lead the rally.



Nifty and It's Heavy Weights

The top ten members of the S&P Nifty index, their weights in the index, closing prices and various daily moving averages are given in the table below. The corresponding close and the moving averages of the S&P Nifty index are also given in the table.


The last column of the above table shows the percentage value at which the last close of each stock and the index is being quoted in comparison with their respective 200 day simple moving averages ( 200 DMA ), as a simple measure of  the recent  momentum. Three other moving averages ( 20, 50 & 100 DMAs ) are also made available in the table for a better understanding of the recent momentum. Three stocks, viz. ICICI Bank, SBI and TCS were still quoting more than 20 % above their 200 DMAs as on 12th Nov. 2010 and thereby indicating the highest momentum in the sample. No wonder banking stocks were the leaders of the current upsurge even though ICICI Bank was a late entrant. The next three stocks with the highest momentum are LT, HDFC and ITC. HDFC Bank, ONGC and Infosys follow the suit and the last place is secured by the laggard,  Reliance stock.   

Now let us also checkout the charts of Nifty Index and these heavy weights for an even better understanding of the recent price action. ( Hey, it is said that a picture is  better than a  thousand words ! ).  All the charts include a regression channel showing the latest or previous general direction of the price action.  The lower panel of all these charts are showing the various DMAs. 

Thursday, November 11, 2010

Update on The Ultimate Momentum Signal - 12th Nov. 2010

A Day of Losses and What to Expect Now ???

Even though it was mentioned in the last post that the chance of a breakout above or below the inside day candle remains more or less equal, it was specifically said that (a) the subtle gap might act as a precursor to some weakness ahead, (b) inside day candles can be traded by entering trades at the break of both the high and the low of the candles, (c) traders may exercise caution about a break below the low of the inside day candle, as it may trap those who were expecting a breakout above 5350 level and (d) long positions need be protected  by an intraday system stop at 6216. ( High 6349 minus 2.1 % of 6349 = 6216 ).

Now, let's check out what happened in Thursday's  trade. Nifty futures opened flat on Thursday and the initial range  was of  just 20 points. The high of the day was at 6321 and the initial low was at 6300. Trading remained directionless till around 12.00 noon. However, unable to make any progress upwards, the futures broke through the low of the inside day candle to record lows between 6275 and 6280. All recoveries from these lows were unable to progress beyond 6298 level, just three points inside the previous day's candle. The failure to progress upwards attracted further selling and later on selling accelerated. Nifty futures even broke through the intraday  protective stop placed at 6216. (  High 6349 minus 2.1 % of 6349 = 6216 ).  The day's low was at 6209. Nifty futures recovered later on to close at 6237.

Update on The Ultimate Momentum Signal - 11th Nov. 2010

  A Low Volume Inside Day and What to Expect Now ???
Even though it was expected that the Nifty future is poised for a breakout above the 6350 level, nothing of any significance happened in Wednesday's trading. Nifty future opened lower at 6320 on Wednesday,  in tandem with the international cues and traded listlessly for the entire trading session. The trading  was also limited to a very narrow range of 37 points. The day's high of 6332 coincided with the previous day's morning session high. ( Please read the previous post for more details ). It also coincided with the previous day's adjusted close price of 6333. However, the Nifty futures failed to reach the previous day's last traded price in Wednesdays trading thereby leaving a subtle gap between these two. These kind of subtle gaps may indicate weakness ahead and have indicated reversals earlier. However, it seems that these kinds of subtle gaps have limited value for securities which trade in a trading range. The last trade of the day was at 6310. Since the day's candle ( ie. trading range ) was restricted to the previous day's range, it is called an inside day candle. Such candles indicate indecision by the market  and sometimes, traders trade them by initiating trades on both the ends of such candles.

Wednesday, November 10, 2010

Update on The Ultimate Momentum Signal - 10th Nov. 2010

 Will the Nifty Future Break the 6350 Resistance ???

In the last post it was mentioned that Nifty future may trade sideways and it may get support at the 6230 - 6250 levels. It was also mentioned that since the markets are trading deep in the bulls territory, buying on decline is advisable. On Tuesday, Nifty futures opened flat at 6297 and the day's then high of 6335 was established in the morning session. The futures stalled at this minor high and started to correct as is usual in any sideways market. The correction saw the enactment of a bout of profit booking and the futures recording a low of 6261, a three day low. This low incidentally was very near to the support of 6250.  The slow recovery  from the low of 6261 accelerated in the afternoon session causing the futures to break above the morning session's high of 6335 on the fourth attempt. The day's was high was at 6347 and the last last trade was at 6345. 

 Nifty Futures - Daily Chart


The chart above shows that the current month Nifty future has closed at the highest ever level as on Tuesday. However, the indices are yet to follow path of the derivative contract yet. ( A higher open on Wednesday can  solve this problem very easily ! ). The latest close which is very near the resistance may help the Nifty future to breakout above the 6350 levels on Wednesday on the back of follow up buying. Since the market has spent two plus days in the present range and the upward reversal is from the support of 6250 levels, a breakout seems plausible. However, the the possibility of the breakout certainly depends on the cues from the international markets on Wednesday  morning. As a matter of abundant caution traders may also consider the possibility of a breakout failure which may occur as described in the following sentence.  In case the futures opens higher above the resistance and sells off below the resistance and remains there, it may turnout to be a  failed breakout warranting further downside. Barring a breakout, the market may still trade sideways too.   

Indian Stock Markets - All Time Highs 


The table above shows the all time high values attained by the Indian stock markets. Even though the indices, Nifty and BSE Sensex are yet to record any intra-day new all time highs, Nifty futures and both the indices have recorded their highest closing rates as on today and on the Diwali day. 

 Nifty Fundas
 
The trailing PE multiple of the Nifty index has been quoting above the 25 mark for some time. The 25 PE mark  can almost  be termed as the starting point of the bubble territory
The above table shows the latest data related  to Nifty trailing valuation, sourced from the NSE, India website.  The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.55,  3.96 and  0.99 as on  9th November 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio of 25 were limited to just  two occasions in the years 2000 and 2007-08. And both such periods coincided with the highs just before the burst of the then bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog ).
 

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  9th  November, 2010 is given below :
The Momentum Signal has remained at the maximum possible value of +100 for the sixth consecutive day in respect of the Nifty futures.

Projected Momentum Signal Close Values

The projected levels Momentum Signal values applicable to various ranges of closing values of the current month Nifty Futures, Nifty Index and the BSE Sensex,  as at the close of next trading day, ie. as on  10th November, 2010, are given in the following table. All readers are requested to take note that the table below is just a ready reckoner for the next day's Momentum Signal values and are in no way any targets for the Nifty futures or indices shown therein.
 
  Please click on the table to enlarge. For more info on the above table,  please click here.

All readers are requested to read the Risk Factors, Risk Analysis, Position Limits and FAQs pages of this blog to have a reasonable understanding of the system. Please do post your suggestions and comments on how this blog can be made more useful.
 
Cheers and Prosperous Investing and Trading !!!

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