Wednesday, May 5, 2010

Update on The Ultimate Momentum Signal - 6th May, 2010

 The Sell Signal Delivers More, But Now What ... ?

Following the negative cues from the world markets, the Nifty futures opened around 60 points lower at 5071 on Wednesday. The markets traded sideways  for most of the trading day barring the last hour. It recovered in the final hour of trading to reach the last traded value of Tuesday  and closed at  5130 with no losses.  Even though, the futures traded below the 100 day moving average placed at 5120 for most of the trading day, it closed above the average. The other major moving averages, 50 DMA and the 200 DMA are at 5190 and 4944 respectively. In case of further advance by the futures, it may encounter resistance at the 50 DMA at 5190. The 50 DMA also coincides with the trailing stop of 2.5 % from the present low.

As the present downtrend in the Indian market is partly induced by the developments in the international markets, all traders need to be extra careful as some of the problems faced by the European debtor countries have  no precedents and therefore the consequences are also unknown. Moreover, some volatility in the whole markets may be expected in association with the  delivery of the judgment in the  RIL- RNRL gas case.   

Nifty Futures - Daily Chart      

The Momentum Signal system recommends stops at 2.1 to 2.5 % in accordance with the volatility of the futures. As the volatility of the futures has increased the trailing stop may need to be increased to 2.5 %. The trailing stops under both the percentages, i.e. 2.1 and 2.5 % are at 5160 and 5190 respectively. Please also see the chart above marking the stops and the one below which shows the different moving averages of the True Range in points.

  Nifty Futures - Daily ATR Chart   

World Markets

The European markets closed with losses of around a percentage each while the Euro lost new ground against the USD. Commodities also lost because of the strength in the USD and  fears over the weakening ( ? ) fundamentals. Even though  the US markets opened with deep losses, some of the losses were recouped by 11 PM IST, and the markets were trading with small losses at around the lows of Tuesday.

The Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as on the close of  5th May 2010, is given below.

The Momentum Signal has closed in the sell territory for the sixth day. 

Projected Momentum Signal Close Values

The projected levels of closing values corresponding to the momentum shift / neutrality / continuation as on the close of trading on 6th May, 2010 are given in the table below. The table also include the projected closing values of BSE Sensex corresponding to the momentum shift / neutrality / continuation signals.
 You can click on the table to enlarge. For more info on the above table,  please click here.

The closing values for the continuation of the downtrend have increased for the -50 signal whereas the closing values required for the -100 signal decreased. The values required for the resumption of an uptrend is far away at present.
As the Momentum Signal trading system just tries to follow the trends and not to find targets,  the trader  just needs to place the recommended trailing stops. If the trend lasts some more, let the system ride the trend. Even if the stop is hit, some profits are  left.

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