Tuesday, June 1, 2010

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

  A Low Range Candle, A Spinning Top .. ? 

For the first time in almost six trading days, Monday's trading of the Nifty futures was confined to a low range bar which predominantly coincided with the previous day's bar. Even though the futures gained  20 points, it  formed a spinning top like candle. A spinning top candle may be a precursor to a small correction. The futures also made gains for the past four trading days and therefore, it may pause or make a small correction. Traders may watch out for such a correction for making the  long entries if need be on the basis of international cues. Monday's trading has not changed the technical position of the markets. The positive momentum is still prevailing in the markets.

Why is the Nifty Future quoting at a discount ?

The Nifty futures closed with a discount of 22 points in comparison with the underlying, the S&P CNX Nifty. Why is the future quoting at a great discount even when it has been rallying for the past four days ! This  is the month of June in which many Nifty constituents pay their  dividends.  Equities of  many Nifty companies are quoting at a premium to their futures because of the embedded dividends. For example, ICICI Bank and TCS are two such heavy weights whose futures are quoting at a discount. Therefore, the discount of the Nifty  future is because of the dividend eligibility of the equities and is a seasonal phenomenon seen every year in the May - June period.     

Nifty Futures - Daily Chart

The Nifty future is still trading inside the regression channel. The 100 DMA at 5107 and the top line of the falling regression channel may act as the next resistances. The middle line of the channel as well as the 50 WMA at 4910 level may also provide support in case of a light correction.  

World Markets 

The  European markets traded sideways on Monday amid news of falling consumer sentiments. The FTSE and CAC closed with minor losses whereas the DAX recorded a minor gain. As the US markets are on a holiday on Monday, the sideways movement of the European indices was not unexpected.

The Updated Momentum Signal Spreadsheet

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

The Momentum Signal has indicated +100 value as on the close of trading on Monday.
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 1st June, 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.

  Please click on the table to enlarge. For more info on the above table,  please click here.

The closing values required for the continuation of the positive momentum are within the last two day's trading ranges. According to the system the closing values required for the resumption of a downtrend  are far away at present. As the risk levels are higher because of the haphazard trading observed last week, traders may stick to the reduced positions. 

Cheers and Prosperous Investing and Trading !!!

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