Sunday, October 3, 2010

Update on The Ultimate Momentum Signal - 4th Oct.. 2010

  The Dramatic  Rally Continues !!!

This blog had pointed out that the dramatic rally in the last hour of the derivative expiry day  lacked wide participation as the Junior Nifty index had closed with losses. Well, this complaint was taken care of by the markets on Friday. On Friday morning, the SGX Nifty was quoting higher indicating a firm opening. The only matter left to the imagination of the traders was the next direction of the markets. Nifty futures opened higher at 6065 with a gap and recorded the day's low of 6050 in the opening minute itself. Futures spent some  time in the positive territory but consolidating just below the previous rally high of 6093.  Once it broke out above the previous weekly/rally high of 6093, it never looked back and rallied strongly till 6184 in the afternoon. The close was at 6176. The Junior Nifty index gained slightly higher in percentage terms than it's bigger sibling Nifty index. The advance decline ratio was also much better in favour of the bulls.

Nifty Futures - Daily Chart


The last green candle shows the strength of the Friday's rally. Nifty futures have gained more than 200 points within a short duration of one hour and one trading day. The rally is still being led by the major pivotals ( read large cap stocks ). Even though a higher opening is normally expected after a strong rally, Nifty future may need to consolidate for some time in the new week before moving up significantly.  Meanwhile, some side counters may see more bullish action.

The Ultimate Momentum Signal has again indicated a long position on the strength of Friday's closing. However, it seems that some clarifications are in order about a re-entry in to an uptrend. The last log position was closed with very good profits just before the expiry day. Since the new long position is being entered in to the same uptrend at a much higher point, the risk reward equation might be much lesser than the previous entry. ( It would have been ideal to be in the position than going for a re-entry at higher levels ).  One may reduce the position limit to deal with the increase in the perceived risk reward equation.

Nifty Index - Weekly Chart


This blog had discussed about possibilities of a channel breakout and a subsequent accelerated rally in posts made in the middle of August and early September. The above chart is given as an update to show what happened after the breakout. Nifty has rallied fast in the direction of the indicated target area 6250 to 6300 levels.

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 25.54, 3.93 and 1.02 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 were limited to 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. Short positions are not at all advisable because markets can remain overvalued and overbought for significant periods  much beyond our expectations. 


Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on  1st October, 2010 is given below :

The Momentum Signal has indicated a re-entry by a +50 value in respect of the Nifty Futures and the two tracked indices.

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  4th 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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