Thursday, September 9, 2010

Update on The Ultimate Momentum Signal - 9th Sept. 2010

   Can the 5625 Resistance Withstand Another Bull Assault ... ?

On the back of negative cues from the international markets, the Nifty futures opened slightly below the previous day's last traded price on Wednesday. After hovering near the open for a short time, the futures started the recovery. The recovery went on till around 1.00 PM when the Nifty index reached the exact high of 5625.50 it recorded the previous day. The Nifty futures, meanwhile, shrugged off it's previous discount to break above it's previous day's high and reached 5624. For the second time as many trading days, the market sold off from the 5625 mark to reach the lower end of the last two trading day's range. Another recovery ensued and finally the futures closed at 5597 for the day. 

   Nifty Futures - Daily Chart    

Now the question is, can the resistance at the 5625 level  withstand another assault by the bulls ? Experience shows that a third attempt to cross any significant resistance or support may have higher chances of effecting a breakout and therefore, traders may not discount a breakout above the top end of the trading channel.  

Any breakout above the trend channel may be associated with a mad scramble to get in to stocks by the retail crowd. The tipsters and talking heads will have their time in the lime light. Analysts will start finding new reasons for buying stocks at high prices.  Euphoria will prevail. And no resistances will stand in the way of the mad bulls. All the dud stocks may become the favorites of the masses once again. And when the  bubble bursts, another set of traders and investors will learn their stock market lessons. ( To read another short description of this scenario, click here to read the post dated 23rd August, 2010. )   

To those readers who might might be wondering why this blogger is hell bent against another super duper rally in the stock markets, let it be made clear that this blogger is not hell bent against any rally or otherwise.  It is only because this blogger likes an orderly stock market which leaves some scope for appreciation for the buyers in the long term. If the market overshoots on the upside, it will lead to all kinds of non sustainable investments and this in turn will lead to bad markets tomorrow. Higher stock prices makes dubious companies raise capital for questionable  projects which will fail at the first signs of economic hurdles. In the end, an overpriced market is as bad or far worse for the economy than an under priced market. In fact bubbles leads to wealth destruction than the claimed wealth creation.

Since the daily chart of the Nifty index was being provided on this blog for the last two days to show the present position of the market in relation to the trading channel, here is the follow up chart.
Nifty Index - Daily Chart

The last close of the Nifty index almost coincided with the resistance line.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  8th  September, 2010 is given below :

For the third day in succession, the Momentum Signal is returning values of +100 for Nifty futures and the tracked indices.

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  9th 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 !!!

To access and/or download  the free online Position Limit Calculator click here.

To checkout the five year history of The Momentum Signal Spreadsheet click here
© 2010, All rights reserved.

Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy.

No comments: