Wednesday, September 8, 2010

Update on The Ultimate Momentum Signal - 8th Sept. 2010

  Another New Yearly High, But Stiff Resistance Above 5600 ... ?

After the runaway rally on Monday, the Nifty futures was expected to spend sometime for consolidation. As expected, the futures opened just above the previous day's last traded price. It hovered just below the highs of the previous day in a two way trade mode till almost 2.00 PM in the afternoon.  Then a recovery from the lower region of the day's trading range seemed to have turned in to a strong rally resulting in the futures and the underlying index trading firmly above the previous day's highs. The futures and the underlying index recorded highs of 5613 and 5625 just before half an hour remaining in the trading day. However, this spike in the market was sold in to and the Nifty futures fell to the open price again and closed there for the day. The sudden price rejection above the 5600 range indicates the presence of stiff resistance at these levels, at least for the time being.   Tuesday's trading has lead to the formation of a doji candle in the daily charts which indicates indecision or a pause. The long upper tail seen in the candle can even suggest a reversal.

   Nifty Futures - Daily Chart        

In case of some more consolidation or a minor correction in the Nifty futures, 5545, 5505 and 5490 levels can provide minor supports. The resistances are at 5600, 5625 and 5650.

In the last post, it was opined that the top end of the trend channel may offer considerable resistance to the current rally at 5600 to 5650 levels on the basis of the weekly chart of the Nifty index. The following chart of the Nifty index shows the exact same top line of the trading channel previously shown in the weekly chart in the daily chart format.

S&P CNX Nifty Index - Daily Chart

It is said that a picture speaks a thousand times better  than words. Yeah, the above picture explains why the spike above the 5600 by the market was rejected immediately as it was an excursion outside the trading channel.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  7th  September, 2010 is given below :

Nifty futures and the tracked indices ( Nifty and Sensex ) have closed with +100 value of Momentum Signal as on Tuesday.

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  8th 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 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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