Sunday, October 31, 2010

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

     Indices Rebound from Support !!! 

When the trading ended on last Thursday, the derivative expiry day, November series Nifty futures were quoting at 6076 with a life time high premium of 88 points over the previous month's futures. Therefore, the market was generally expected to open higher on last Friday. It was quite difficult for the chartists to align the current month futures and the previous months futures on charts because of the excessive premium. The excessive premium of Nifty futures were seen declining to more reasonable 30 to 40 points during the day.   The Nifty futures opened at 6050 on Friday and selling pressure was seen almost right away. Even though the future contract  recorded a low below the crucial 6000 level in the morning session, it recovered immediately and started trading between mostly the 6000 and 6042 levels. A sell off after the 1.00 PM mark saw the futures recording a low 5966.25. However, another  recovery which started at 2.45 mark saw the Nifty futures recording the day's high at 6066. As is common these day's, it seems that the stops of  the bulls below the 6000 mark and bears above 6050 were taken out during Friday's trading. The last trade was at 6040. Even though the gains on a short position were not held, the sell signal indicated by the Momentum Signal as on the close of Thursday's trading would have resulted a favourable excursion of 110 points during Friday's trading.

Nifty Futures - Daily Chart 

Nifty future is still trading inside the broad trading range between 5940 and 6240. The futures and the underlying index are still supported at 5940 and 5930 levels respectively. The reason for the index reaching the support and the futures reversing from a higher level may be ascribed to the premium at which the derivative is priced at present. The following chart of the underlying index shows the intermediate term support at 5930. The last candles in both the charts are showing a tails at the bottom indicating support at lower levels. It may even indicate a reversal from the support level. As the Nifty future is still trading inside the broad trading range  and it is still near crucial support levels, the immediate market direction remains unclear.

 Nifty Index - Daily Chart

Nifty Fundas
The trailing PE multiple of the Nifty index has been quoting above the 25 mark for some time. The 25 PE mark  can almost  be termed as the starting point of the bubble territory.  Even though the multiple quoted just below the 25 mark on some days recently, Friday's  PE multiple has been  quoting at  25.03 times.
The above table shows the latest data related  to Nifty trailing valuation, sourced from the NSE, India website.  The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.03,  3.82 and 1.03 as on 29th 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 the 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 ).

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  29th October, 2010 is given below :
The Momentum Signal has given -100 values indicating negative momentum as on last 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  1st November, 2010, are given in the following table. All readers are requested to take note that the table below is just a ready reckoner for the next day's Momentum Signal values and are in no way any targets for the Nifty futures or indices shown therein.

  Please click on the table to enlarge. For more info on the above table,  please click here.

All readers are requested to read the Risk Factors, Risk Analysis, Position Limits and FAQs pages of this blog to have a reasonable understanding of the system. 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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