Thursday, April 1, 2010

Update on The Ultimate Momentum Signal - 1st April, 2010

Another Neutral Day...!

The  Nifty Futures opened near the Tuesday's close on Wednesday and traded towards the day's high in the initial stages. Thereafter, it traded downwards, broke the Tuesday's low of 5263 and reached a low of 5245. It again traded upwards and finally closed at 5264 without  any change in the closing values of the last two days. The future has not yet broken the support from the regression channel, which was shown in the earlier posts. The next direction of the trade remains uncertain. Now, let us checkout some lessons from the past three day's trading. 

Nifty Future - Daily Chart

The above chart shows the Nifty Futures trading at the new highs for almost one and a half days. Later on it failed to trade higher and therefore traded back to the areas which is below the January, 2010 high of 5303. The Jan. 2010 high of Nifty Future is marked by the horizontal line in the chart. In trader's parlance, this is called a bull trap because many new traders would have entered in to long positions, when the futures broke the old high. Now, they have been trapped and hence the name bull trap. The opposite of the above is called a bear trap. 

There are another type of traders who trade breakout failures like this. They will initiate short positions when futures falls below the previous high.  Note that on Wednesday the futures  encountered strong selling when it neared the old high. ( The final word is yet be spoken on whether the breakout  has failed completely yet..! ) 

How to Avoid Such Traps :

Some times, these kinds of bull and bear traps can be avoided  if comparisons are made between the future and the underlying. In the case of the Nifty futures, the comparison can be made with the mother of all Indian equity indices, the BSE Sensex.  Please see the chart of the BSE Sensex  given below. The Sensex chart shows no significant new high. ( This is the reason for including the Sensex also in the last table,  which shows the momentum signals corresponding to the various  projected closing values  of the  futures, Nifty Index and Sensex. The more a signal is confirmed by the future and the two indices together, the better. )

BSE Sensex - Daily Chart  

The Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as on the close of 31st March 2010, is given below.

The Nifty Future has closed in the neutral territory for the second day.

Projected Momentum Signal Close Values

The projected levels of closing values required for momentum shift / neutrality / continuation as on the close of trading on 1st April, 2010 are given in the table below. The table also include the projected closing values of BSE Sensex required for momentum shift / neutrality / continuation.

 You can click on the table to enlarge. For more info on the above table,  please click here.
The closing values required for the resumption of the uptrend and the trigger for a downtrend has moved upwards.

Cheers and Prosperous Investing and Trading!!!  

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