Wednesday, September 29, 2010

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

Another Wave of Profit Booking ... !!! 

Nifty Futures were expected to test the rally highs because of the  late momentum on the previous day and the positive state of Asian markets at the time of the opening.  Nifty futures opened higher too as expected. However, the higher opening actually became a good 'sell in to the rally' opportunity by hindsight.  ( As a consolation, the underlying index, Nifty almost reached the rally high at the time of opening . However, the current month futures contracts just recorded a high of 6075, just 3 points above the index high. ). The mild profit booking turned almost in to a full fledged sell off and futures closed below the previous day's range.  No intra day rallies were able to rise above 20 points from the lows during the day. Wednesday's candle has engulfed the previous day's candle, may be, indicating a trend change. By hindsight, Tuesday's candle now seems to be of the hanging man type which normally occurs before trend changes.  Such candles are formed when the first wave of selling is bought off and the market closes near the open. However, market is unable to buy off the next round of selling and falls . 

Strong and long running rallies like the one we just had are capable of springing a surprise by another leg of short covering rally. A reversal of the uptrend is yet to be confirmed by the market action. This confirmation will be available only when the markets trades and stays below the previous mid-week low of 5940.

 Nifty Futures - Daily Chart    

The existing long positions entered  as per the Ultimate Momentum Signal at the market level of 5576 were exited as on Wednesday's closing at 5597. The trade generated a profit of 420 points. ( The profit quantum of  420 ( char sow beez ) is purely coincidental ;-))  ). As the market has closed in the neutral territory and because of the derivative expiry, the next direction of the market remains unpredictable.

Nifty Valuations : The trailing PE multiple of Nifty index is still 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 25.29, 3.79 and 1.03 as on 29th 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.   

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  29th September, 2010 is given below :
The Ultimate Momentum Signal has fallen to the nuetral territory with a value of +10 indicating the system exit of the long positions.   
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 30th 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.

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Cheers and Prosperous Investing and Trading !!!

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