Sunday, September 26, 2010

Update on The Ultimate Momentum Signal - 27th Sept. 2010

    Another New Week and Another New High ... ?

As expected, Nifty future opened flat last Friday. Since the Thursday's profit booking/selling wasn't enough to break the 5950 - 5960 support convincingly, it tried to test the highs.  ( Please read the previous post explaining that a mere ten point break of any reference point in the Nifty futures is not a confirmed break signaling a change of direction ).  After hovering in a 20 point range between  the 5960 - 5980 range, it gained further and spent it's time below the 6000 mark till noon. By the time the European markets were opening, futures regained further strength and went on to record a high of 6043, just below the rally high of 6048, in the last half an hour of trading.  Nifty futures closed for the week at 6030.  The over all positive momentum remains intact even though the market has  been going through a pause or consolidation phase for the last three trading days.  As the US market  has closed on a very strong note on last Friday, the positive momentum in the Indian as well as the  international markets may help the Nifty futures to record a new rally high in the early part of the new trading week.

Nifty Futures - Daily Chart    

The chart above shows the consolidation by the Nifty futures for the last three trading days. It has traded outside the narrow regression channel too. Now the lower boundary of the regression channel may become a minor resistance for the Nifty futures. The projected interception point of the Monday's candle and the lower boundary of the regression channel  is at 6090 levels. Therefore,  the level of 6090 may be taken as a target for Monday in case the Nifty future breaks out above the previous week's high of 6048. 

Nifty Index - Weekly Chart

The above weekly chart of the Nifty index shows the eleven month old trading channel and the breakout above the channel. The medium term target for the breakout remains at the range 6250 to the previous all time highs at 6330. However, this target  is given only as  a probability and not as a trade recommendation. Any new  long trading positions in  an already maturing rally are suitable only to the experienced and  nimble traders. This is also because of the rich valuation levels being obtained in Indian markets at present, which is explained in the next paragraph.

The trailing PE multiple of Nifty index is quoting above the 25 mark. The historical price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.41, 3.88 and 1.02 as on 24th September 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio 25 are very limited and both such periods were the blow out stages of earlier bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog. )  The following table shows the latest data related  to Nifty historical valuations 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  24th September, 2010 is given below : 

Nifty futures and the tracked indices have closed with the upward Momentum Signal values of +80 as on last Friday.

Projected Momentum Signal Close Values

The projected levels Momentum Signal values applicable to various ranges of closing values of the current month Nifty Futures, Nifty Index and the BSE Sensex,  as at the close of next trading day, ie. as on   27th 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.

As seen from the above table, any further correction or consolidation may lead to the Momentum Signal trading system indicating an exit of the existing long positions taken at the 5576 levels. 

The trading stop for long positions under the Ultimate Momentum Signal system  remains at 5920 ( i.e. 6048 minus 2.1 % of 6048 ). 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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