Thursday, October 14, 2010

Update on The Ultimate Momentum Signal - 14th Oct. 2010

    Target All Time Highs !!!

Wednesday's post was concluded by these statements. "  Even after the release of a lower than expected IIP data and a 10 point break of the  6093 support, the futures recovered from the lows to close at 6113 for the day. As posted earlier, traders may check how the market is trading at the important reference points of 6083, 6093, 6134, 6165, 6175 and 6193 to get a better understanding of the trading direction. The Ultimate Momentum signal has indicated a sell as on Tuesday 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 below the level. "

Before analysing what caused the stupendous rally on Wednesday, let's find if any game changing event happened after the post. Yes, the minutes of the FOMC meeting, the US Fed's rate fixing committee,  came out yesterday. The minutes was generally accepted to be more accommodating than expected because Fed may try to increase the inflation expectations through more monetary easing and even through open market operations by way of asset buys. This means that the supply of  cheap money may accelerate rather than diminish. And the rally induced by the cheap money in the emerging markets may continue further.      

Now let us check what happened on Wednesday. The market had actually tested the 6093 support and the test was a failure. ( This was indicated by the close inside the trading range. ) Readers of this blog are aware that when the market tests a support or resistance and the test fails, market always tries to test the  support or resistances in the opposite direction. That's why the important reference points ( 6134, 6165, 6175 and 6193 were given in the previous post. ) On Wednesday,  Nifty future opened at the first resistance of 6134 and tried to trade lower in the initial minutes.  It couldn't even reach the Tuesday's last traded price of 6113. Bears might have set up their stops at the 6134 resistance by then. Once the markets broke above the 6134 again and took out the stops, there was no look back. It broke above the successive minor resistances at 6165, 6175and 6193 one by one very easily.  The surprising thing was that it even broke above the higher resistances at  the 6230 and 6250 levels too, very easily. Now the markets are poised to test the all time at the minimum. 

Nifty Futures - Daily Chart   

In case of minor corrections and consolidation, Nifty futures may get support at the previous resistance levels of  6250, 6230 and 6175.
 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.
Nifty Fundas

Together with the strong rally and non stop gains in the broader markets, the trailing valuations levels of the Nifty index are also climbing in to the bubbles territory. 
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 25.91, 3.92 and 1.01 as on 13th 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   13th October, 2010 is given below :
The Ultimate Momentum Signal is trying to cope with the fast markets of the present times. The Momentum Signal could only indicate a neutral value of +30 as on Wednesday.

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  14th 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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