Thursday, August 12, 2010

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

 Is This the Long Overdue Correction ... ???

Here are some selected quotes from the last post :

" The futures again tried to test the previous day's highs, but it could not even reach the previous day's close."

"Most readers of this blog might have known gaps in the charts. The normal gaps occur when the trading ranges of two bars do not have common areas. However, this blog would like to introduce another kind of subtle gap which normally isn't noted by the chartists. This subtle gap occurs when a bar do not touches the previous closing price or the last traded price."  

"Sometimes, these subtle gaps may indicate a reversal of the trend too."

"The Nifty futures did not touch the Monday's last traded price of 5478.50 on Tuesday,  leaving very small gap of 3 points."  

Well, Tuesday's subtle gap of three points has become a significant one. The Nifty future opened at 5450 on Wednesday and it achieved  daily high of 5468 in the early hours of trading. Then it started to move  downward at slow pace. It also spent some time trading above it's minor supports at 5450 and 5425 before breaking the supports. The futures closed at 5405, almost at the day's low. 

Now, the pertinent question is whether this is the long awaited correction ?  The answer seems to be an "Yes". The reasons are : (1 )  Many Nifty constituent stocks were already exhibiting lack of trading interest and were trading flat, ( 2 ) The up bars seem to have lesser volumes than the down bars, and ( 3 ) The index is turning after it reached a historical  PE multiple of 23 times where many intermediate rallies of  the previous bull market  ended.
Nifty Futures  - Daily Chart
The Nifty future has some supports at 5350 and 5225 levels.
World Markets

Markets all over the world has started participating in the present sell-off on the fear of a slowdown in the present economic recovery. The European stock markets lost further after the close of Indian markets. The FTSE, CAC, and DAX  recorded significant  losses of  2.44, 2.74 and 2.10 percents on Wednesday. The US market indices were trading with significant losses of 2.25 to 3 % at 00.00 Hours IST on the back an unexpected widening of trade deficit.
Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on   11th August, 2010 is given below :

The Momentum Signal system has given a sell signal as on the close of trade on Wednesday.
Projected Momentum Signal Close Values

The projected levels Momentum Signal values applicable to various ranges of closing values of the Nifty Futures, Nifty Index and the BSE Sensex,  as at the close of next trading day, ie. as on  12th August, 2010, are given in the following table. 
Please click on the table to enlarge. For more info on the above table,  please click here.   

The following quotes are from the previous posts and are being repeated here as matter of abundant caution :

"Readers of this blog may please note the following  'Risk Factor' which is being  repeated almost daily these days. The markets are trading in small ranges at the top end of a slow climb and for all practical purposes the trading is range bound. Range bound markets are not suitable for the  profitable trading of the Momentum Signal system."
"As the Momentum Signal is primarily a trend following system, it may indicate whipsaw signals in range bound markets. As such, all readers of this blog are requested to read the various pages describing the system and understand all the intricacies of trading the Momentum Signal and it's risk factors too. Please do write in your comments and suggestions."

Cheers and Prosperous Investing and Trading !!!

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To checkout the five year history of The Momentum Signal Spreadsheet click here
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