Sunday, August 29, 2010

Update on The Ultimate Momentum Signal - 30th Aug. 2010

 Nifty at the 50 DMA Support ... !!!

The Nifty futures opened flat on last Friday and as usual it tried to test the previous day's highs. However, it failed again to break 5490 resistance, which was mentioned in the last two posts. If the market fails to trade above a resistance level, it normally changes the direction and test the supports. The support at the 5450 - 5460 failed in the test and therefore, the market attracted sudden selling as pointed out in the  previous posts. The market has a tendency to retest the support it just broke. Nifty futures have also closed just above it's support from the 50 day moving average  ( DMA ) last Friday. The Nifty index and it's derivative have been trading above this support level for the past two and a half months. Therefore, futures may retest the 5450 - 5460 resistance on Monday. If it is able to trade above this level, it may again try to test the 5490 resistance.  

As the US markets have recovered last Friday on the back of Fed Chairman's positive statements, the chance of the Nifty futures retesting the resistances have risen.    

Nifty Futures - Daily Chart  


The lower panel of the above chart shows the various daily moving averages ( DMAs ) of   the Nifty futures.  The 20, 50,100 and 200 DMAs of the futures are placed at 5462, 5395, 5265 and 5173 respectively as on 25th August 2010. The futures may get supports at these various DMAs and other previous lows in case of  a mild correction.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on   27th August, 2010 is given below : 



As per the Momentum Signal system, Nifty future and the major indices, Nifty and Sensex, have closed in the sell territory with signal values of -100.

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   30th 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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2 comments:

vaib said...

Hello

I have a query on projected scores for tmrw on the basis of close. Since for the lowest score (-100) the close is above 5410, can we infer that this signal indicates of nifty trading above 5410 in +ve region?

Vaib

momentumsignal said...

Hello Vaib,

"Since for the lowest score (-100) the close is above 5410,"

Here is a correction ! Its not above, its at or below the level 5417. OK ?

It just implies that a close by the future at or below the 5417 on 30th Aug will correspond to a -100 value for the MS system. Now you may also see that any close at or below 5459 gives a MS value of -50 to -100.

Let me make it's clear. I have no idea or confidence about using the projected closing ranges in according to the applicable MS values as a tool for intra-day trading. The MS is envisaged as a one stop tool to find the momentum direction, something which can be used as a trend following tool. It helps a trader if and when a trend is available. Markets have different phases. Sometimes it stalls. Sometimes it trades in ranges. For the past month or so it is trading in a range. Look at the market internals of the Nifty index too. Some stocks hit new highs. Some the six month lows. Hope I have clarified your question.
As far as possible I am trying to provide the explanations for what happened in the market and what may happen and the reasons therefore in the daily posts.