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Sunday, September 19, 2010

Update on The Ultimate Momentum Signal - 20th Sept. 2010

   A New Week and a New High Too ... ?  


Nifty futures made a phenomenal rally last week on the back of the relentless buying by  FIIs. The market close was near the highs too. Now the question is whether the market will be able to sustain the last week's run rate in this week too. Even though the Ultimate Momentum Signal system do not involve any forecasting or prediction of targets and it just keeps the positions as such until exited by the application of system rules, let's revisit the post dated 16th September in which  the immediate  target  was arrived at. According to the good old simple gap theory of the technical analysis, the target remains at the 4950 to 4960 area.  And the market may reach the said target in the early part of the new week. However, traders may consider two factors after a week of relentless rally. The first is that the rally may decelerate as no markets can continue in a single direction without any breathers. And the second is that the markets have no big resistances above and the only major resistance is at the previous all time high. Therefore, the rally may become a bit more broad based while the front runners ( the major Nifty companies ) take a breather. The symptoms of the rally becoming much more broad based ( rally spreading to the midcaps ) was seen on last Friday as seen in the improvement in the advance declines ratio.

 Nifty Futures - Daily Chart    




The immediate target of 4950 to 4960 area is shown in the daily chart of the Nifty futures above. However, a comparison of the present valuation of the Indian market  to the historical valuation levels obtained in the two previous boom bust sequences, indicates that the markets have become quite expensive right now. ( For more information on historical fundamantal analysis of the Nifty index please read ' Nifty Fundas ' page from here.) The ultra cheap money policies of the recession hit countries  and the resultant excess liquidity is the only real reason behind the FIIs buying. Another saving grace which favors the rally can be the still ongoing monsoons. The Indian institutions are rather on a profit booking mode than participating in the rally by any  aggressive buying. The present day valuations can be justified only by a corporate profit growth at least 25 % for the FY 2011. As the first quarter results were rather lukewarm, corporate India has to do some unprecedented kind of profit growth in the remaining months of the year to reach such ideal growth rates.  Therefore,  any reversal in the foreign fund flows may result in a bout of panic selling  and a correction.  The price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index as seen from the NSE, India website is shown below. 

  

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  17th  September, 2010 is given below : 
 
 
Nifty futures and the tracked indices have closed with the maximum upward Momentum Signal values of +100 for the ninth consecutive day.
 
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   20th September, 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 trading stop for long positions under the Ultimate Momentum Signal system  remains  at  5791 ( i.e. 5916 minus 2.1 % of 5916 ). Traders may raise the trading stop to 97.9 % of the new high, as and when the market makes such new highs.

 

 
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3 comments:

Forecasting Markets said...

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Anonymous said...

Good point, though sometimes it's hard to arrive to definite conclusions