Another Flat Day, But Anything can Happen Now !!!
Last Friday, the markets behaved just like what was expected of it ! Please note that his blog had opined that at best the market can trade flat or test the new support in the area between 4775 to 4490 in the very short term. Therefore, the markets traded in the slightly negative to flat area and remained just below the resistance at 5550 for the whole trading day. Now let us consider what happens next !
Due to the slowing recovery in the developed markets and the extreme cheap money policies followed almost all over the world, the FIIs are piling up on assets, even in the marginal emerging markets where economic growth is prevalent. It seems that these momentum pursuers are not concerned about the valuations. The Nifty index is trading at a historical PE multiple of 23 plus now. Historically, it has remained steadfastly above these levels only in periods when retail euphoria and asset price bubbles were present. The last two occasions it happened were in the years 2000 and 2008.
Therefore, another bout of irrational exuberance and the resultant asset price bubble is perfectly feasible. It is reported that, even now, at these rich valuation levels, retail participation is lacking. Any further rally instigated by the FII buying may attract the media hype and the retail crowd. Yeah, any asset price bubble has to end by trapping the retail crowd to hold the bag !
Further, the narrow nature of the trading in the Indian stock markets as analysed in the two articles by the renowned journalist Sucheta Dalal makes the matter a bit scary too. ( The two part article " How Hollow is the Indian Market " can be read by clicking the links below :
Now let's make the long story a short one ! " Anything is possible in the markets, and therefore, the rally may even accelerate throwing all cautions to the wind !! And it will be the best of times to sell ( no shorting at all ) and liquidate stocks when everybody screams stock prices will never come down !!! "
Nifty Futures - Daily Chart
The Nifty future is still trading below the resistance at the 5550 level. It may even open above these level depending upon the international cues on Monday. Traders may try to be nimble footed as anything can happen from now on !
Updated Momentum Signal Spreadsheet
The updated spreadsheet showing the Momentum Signal as at the close of the trading on 20th August, 2010 is given below :
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 23rd 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.
As matter of abundant caution, it is reiterated that the market may still be range bound by all effects and therefore, the risks of the system indicating whipsaw signals are extremely high if the markets remain range bound.
"Readers of this blog may please note the following 'Risk Factor' which is being repeated almost daily these days. The markets may be trading in small ranges at the top end of a slow climb and for all practical purposes the trading may remain 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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