Tuesday, October 12, 2010

Update on The Ultimate Momentum Signal - 12th Oct. 2010

   A Day of Consolidation !

The last post of this blog had  indicated that Nifty future is broadly trading above the support at the 6093 levels and the major higher resistance is at the 5248 levels. It was also indicated that the future has a minor resistance at 6175 levels, being support of the first three days of the previous week. And the operative indications for Monday's trade as given in the last post was as follows : "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."

In the light of the above analysis, let's see what happened on Monday's trading. Nifty futures opened above the indicated resistance of 6175 with the opening price being 6182 on the back of all round positive gains in the international markets. The high of 6192 was also recorded in the opening minutes. ( Last post also said that most international markets are almost near or at five month highs and the CBOE VIX is at a five month low. )  Once a market opens with a gap, it has a tendency to fill the gap with the previous day's trading range  first and then revisit the previous last traded price or the adjusted close price. ( BTW, NSE close prices are the weighted average prices of the last half an hour of trading and it may differ from the actual last traded prices.) Therefore, once the initial shock of higher opening was over, the futures started to trade lower and it broke the resistance turned support at 6175 and went in to trading in the previous day's trading range within  the first hour of trading. There after, the market remained inside the top end of the previous day's trading range with the high at 6165 and the low of 6136 supported by the last Thursday's low of 6134. An afternoon excursion saw the futures trading above 6165 for a very short stint till 6170. However, this rise was also sold in to and the futures closed at 6155. 

Nifty Futures - Daily Chart   

Monday's trading has not changed the technical position of the market even though there were wide spread gains in the mid and small cap sectors as indicated by the positive advance decline ratio. As already pointed out on some earlier posts that Nifty may require a rally  in the  Reliance stock and as anticipated , the present strength is mainly provided by  the said market heavy weight stock Reliance.

As there was no significant change in the Nifty's technical position, this blogger is inclined to copy and paste the analysis of the previous post for the next trading day too. "Traders may check where exactly the market is inclined to trade to come to a logical conclusion to this question of market direction. 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." 

 All Time Highs

Many readers who might not have access to the historical 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 25.51, 3.86 and 1.02 as on 11th 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   11th October, 2010 is given below :

The Ultimate Momentum Signal value for the Nifty futures and the two major indices has moved to -30 which indicates neutral momentum. The short position positions indicated by the last Friday's -50 value have been exited as on Monday's close. Please note that the possibility of this outcome was also indicated in the previous post by attracting attention to the risk factor 4 available on the Risk Factors page of this blog.

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  12th 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.
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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