Wednesday, September 22, 2010

Update on The Ultimate Momentum Signal - 22nd Sept. 2010

   Signs of profit Booking ... ?

Nifty futures opened with positive momentum on Tuesday and the day's high of 6046 was recorded in the early part of session. The widely followed indices Nifty and BSE Sensex hitting important round figure milestones of 6000 and 20000 seems to have attracted a bout of profit booking on Tuesday. The market recorded the day's low of 5972 in the first one and a half hours. The markets hovered just above the positive territory in a two trade mode for the whole trading day thereafter. Nifty futures and both the major indices closed above the important psychological levels of the earlier mentioned round figure marks. However, the advance decline ratio as seen on TV showed a negative picture of  declines of 5 shares against every advancing share.  Tuesday's trading also witnessed a marked decline in the open interest of the Nifty September contracts to the extent 23.50 lakhs ( 2.35 million ).  These two facts points to a bout of profit booking which may continue before the next leg of the rally.   

Nifty Futures - Daily Chart

The above chart shows the regression channel in which the strong rally has taken place. ( Well, the rally happened initially and the channel came later ! ).  Any minor sideways move or pause in the market may be supported by the narrow regression channel. Later on, a break of the narrow regression channel may indicate the deceleration of the rally too.

Readers of this blog might remember that this blog had been discussing the possibility of an irrational ( ? ) mad rush to get in to stocks in case of the market making a breakout above the eleven month old upward moving trading channel. ( Please read the posts dated 23rd August and 9the September, 2010 ).  Now let's revisit the Nifty index chart showing the old trading channel. 

Nifty Index Daily Chart 

The chart above clearly explains why the breakout was considered significant and why the markets behaved in the form of a run away rally after the breakout. Now, the the original channel had a height of approximately 650 points. Therefore, the breakout can also travel an equivalent height of 650 points from the breakout point of 5600. This effectively gives a target of 5250 which is just 75 points below the all time highs. A word of caution too. This target is discussed just for the purpose of learning technical analysis  concepts and not as trade recommendation. Market may or may not reach the target. Even if it reaches the target, it may happen even after a correction in which all fresh bulls may be shaken out.

World Markets   

The widely followed US S&P 500 index seems to have broken out above the crucial level of 1130 after a long stint below this level. The NBER, ( US National Beuro of Economic Research ) has also confirmed the end of the recession in the US. This fact together with the still continuing extreme cheap money poicies may help the continuation of the equity rally world over.

US S&P 500 Index - Daily Chart

Meanwhile the historical price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index reached 25.37, 3.87 and 1.02 as on 21st Septeber 2010. The following is a snapshot of the Nifty historical fundamental as seen from the NSE, India website.

Nifty Index - PE, PB and DY Ratios

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  21st  September, 2010 is given below : 
Nifty futures and the tracked indices have closed with the maximum upward Momentum Signal values of +100 for the eleventh  consecutive trading 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   22nd 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  stands raised to    5919 ( i.e. 6046 minus 2.1 % of 6046 ). 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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