Sunday, October 24, 2010

Update on The Ultimate Momentum Signal - 25th Oct. 2010

      Bumpy Ride Ahead ???

Last Friday, Nifty futures opened at 6140 and didn't trade above the previous day's high of 6152 and thus paving the way for a revisit of the lower support levels. It means that the area  between 6150 to 6175 remains as a resistance for the time being. On the way down the futures pierced the indicated support of 6083 to record a low of 6058 on Friday. However, the futures recovered and closed at 6089 , which was just above the support area of 6083. As the market has traded through the 6083 support area many times by now, the significance of this support / resistance seems to have lost to some extent. 

Nifty Futures - Daily Chart


The recovery seen so far could either be a part of another leg of an up move or a temporary recovery which may normally occur in any downtrend. The immediate direction of the market seems to be elusive at the best. The impending derivative expiry on Thursday and a heavy dose of derivative positions may make the trading scene very choppy and volatile. More of quarterly results will add to stock specific volatility too. The saving grace seems to be strength seen of late in the international equity markets. However the international market's reaction to the call to avoid competitive currency devaluation made at the G 20 meet and whether the call will have any effect on the ground  remains to be seen at present. In case of an up move, traders may watch out for the markets reaction at 6150 to 6175 resistance levels. If the Nifty future breaks the said resistance, it may revisit the 6230 - 6250 area. And in case the futures remains below the 6083 to 6093 area, it may revisit the 6000 support area. However, traders may expect higher uncertainty at these levels because of  the added instability due to the derivative expiry and release of more corporate results.   

Nifty Index - Weekly Chart


The weekly chart of the Nifty index shows three red candles in a row. The last candle's tail is placed at the bottom indicating a support at the lower level. However, the previous two candles had thier long tails placed at the top end indicating selling and resistance at higher levels. The only conclusion which can be made from  the chart above is that the medium term uptrend is pausing at present and a reversal  of medium term trend  as  indicated by a lower low and a lower high has not yet occurred. The indications are for further choppy and volatile trading till the market direction makes it self seen on charts.


 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 intraday high of Nifty future is 6336 and that of the Nifty index is 6357. The highest closing prices of futures and the index were at 6288 and 6289 respectively.
Nifty Fundas

Together with the strong rally and non-stop gains in the broader markets seen till recently, the trailing valuations levels of the Nifty index have again started hover above the 25 mark. The 25 PE mark  can almost  be termed as the starting point of the bubble territory.
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 22nd 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  22nd October, 2010 is given below :
The Momentum Signal has indicated neutral values for the last Friday's close values.


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  25th October, 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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