Friday, October 1, 2010

Update on The Ultimate Momentum Signal - 1st Oct.. 2010

 A Dramatic  Derivative Expiry !!!
Even though Nifty futures closed in the neutral territory just before the expiry day, this blog had indicated  in the previous post that  the next market direction seems unpredictable and the market can spring surprises in the form of  sudden short covering rallies. Well, one of those surprise rallies happened just after the 2.30 PM mark on the derivative expiry day. Nifty futures were trading with downward bias till late afternoon. However, a sudden burst of allegedly ( ? ) derivative expiry related buying in the major league shares of the Nifty index saw the index rallying from a low of 5964 to 6048 within a very short span of less than an hour. Well, the expiry was expected to be between the 6000 and 6100 marks because of the option market open interest positions and it just happened. Now, the strange thing about the rally was the limited participation indicated by the near non participation by the constituents of the Junior Nifty index. The Nifty index gained 0.65 % and closed at 6030 whereas the Junior Nifty lost 0.96 % for the day. For every share gained in the Junior Nifty, four shares declined during the day. It was also seen that the near 20 point premium of the October Nifty futures just vanished by the time of the close.

Nifty Futures - Daily Chart 

Nifty Futures and the underlying index have closed in the neutral territory. The immediate market direction remains unpredictable as ever. The start of a downtrend can only be confirmed by the market  action of falling below the 5940 levels and staying there without recovery. Meanwhile, SEBI ( Securities Exchange Board of India ) has disallowed additional investment by some FIIs accounts and sub accounts who aren't compliant with the broad based investor criteria with effect from Friday. The effects of this ban remains to be seen.

Nifty Valuations

The above table shows the latest data related  to Nifty historical valuations as seen from the NSE, India website.  The trailing PE multiple of Nifty index is still quoting above the 25 mark. The historical price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.46, 3.82 and 1.03 as on 30th September 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio of 25 are very limited and both such periods were the blow out stages of earlier bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog. ) 

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on   30th September, 2010 is given below :
The Ultimate Momentum Signal has fallen to the nuetral territory with a value of +30 indicating the system exit of the long positions.   
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  1st 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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