Monday, October 11, 2010

Update on The Ultimate Momentum Signal - 11th Oct. 2010

  Another Test of Highs, Consolidation or Correction ?

In the last Friday's post, this blog had indicated that the market is in the process of testing the support at 6093 because of it's failure to trade above the resistance levels of 6224 - 6227.  Nifty future had support at the 6270 - 6275 levels in the first three days of the previous week. Once this support was broken, it is customary for  the market to test the previous resistance turned support at the 6093 levels. Now, let's see what happened in last Friday's trading. Nifty futures opened at 6165 and made a high of 6169 almost simultaneously with the open. It started to trade lower immediately. In such situations, the future is expected to probe the last traded price or close first and then, the low of the previous day.  In the morning session, Nifty futures tried to stay above the previous day's low of 6134 in a two way trade mode. However, it was not to be. Once the previous day's low was broken, the trading was mostly confined to an area around the 6134 level but broadly bounded by the support at 6093 and last Thursday's close at 6244. Once the day's low of 6097 was recorded just before the 3.00 PM mark, the market recovered to closed at 6142. 

Nifty Futures - Daily Chart   


The market was generally supported by the Nifty heavy weights Reliance, Infosys and SBI on Friday. The selling pressure also seemed to be very less than that of Thursday. Most international markets are still in the uptrend and are still trading near their almost five month highs. The US CBOE VIX index, the fear index which tracks the US S&P 500 options, also closed at a five month low on Friday. The test of support at 6093 by the market was also a reasonably anticipated event. ( Please see the earlier posts and the Nifty futures charts. ) Now, the question is, whether the last weeks market action of higher open and a lower close was really only  a test of the support or the start of a consolidation ( read flat trading ) or a correction. Traders may check where exactly the market is inclined to trade to come to a logical conclusion to this question. If the market trades above the 6170 - 6175 levels and persistently stays above these levels, Nifty futures may test the highs again. If the futures trade between the 6090 to 6175 area, traders may check for breakouts and breakout failures beyond these boundaries.

The Ultimate Momentum signal has indicated a sell as on Friday by a signal value of -50.  However, this sell signal will be confirmed only when the futures trades below the near support at 6090 and stays there.

Nifty Index -  Weekly Chart      


Last week's trading has lead to the formation of the first red candle with a tail place on top in the  weekly chart of the S&P Nifty  Index. The index has formed this red candle very near to the previous indicated medium term target for the breakout above the previous eleven month old upward moving trading channel.
All Time Highs


  
Many readers who might not have access to the charts might be interested in knowing the all time highs of the Indian stock market indices. The above table shows the all time highs of Nifty futures (then current month ), S&P Nifty and BSE Sensex and the dates on which the highs were recorded. The all time high of Nifty future is 6336 and that of the Nifty index is 6357. The all time high of BSE Sensex is at 21207. The recent highs were just 2 % off from the all time highs.
Nifty Fundas
 
 
The above table shows the latest data related  to Nifty trailing valuation, sourced from the NSE, India website.  The trailing PE multiple of Nifty index is quoting above an expensive 25 mark. The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.37, 3.84 and 1.03 as on 8th October 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio of 25 were limited to just  two occasions in the years 2000 and 2007-08. And both such periods coincided with highs just before the burst of the then bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog ).

This information is being provided for the benefit of long term investors only. For traders, they can enjoy the rally till it lasts. It may be noted that markets can remain overvalued and overbought for significant periods  which can be much beyond our expectations.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on   8th October, 2010 is given below :
 Nifty future and the two major indices, Nifty and Sensex closed with an Ultimate Momentum Signal value of -50 indicating a sell on 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  11th October, 2010, are given in the following table.

   Please click on the table to enlarge. For more info on the above table,  please click here.
 
Readers of this blog may please take note of the Risk Factors described on this blog and especially the risk factor No 4, which may be applicable to the present sell signal.

Please do post your suggestions and comments on how this blog can be made more useful.
 
Cheers and Prosperous Investing and Trading !!!

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1 comment:

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