Thursday, October 7, 2010

Update on The Ultimate Momentum Signal - 7th Oct. 2010

   Test of Highs Over, But the Outcome Remains Inconclusive !!!

Nifty future was expected to test the rally high of 6248 on Wednesday on the back of all round positive momentum seen in the international markets overnight. Therefore, Nifty futures opened with a gap at 6227 and went on to record the day's high of  6243 right at the open. This blog had been writing that all kinds of gap openings are tricky, because of markets' natural tendency to fill the  non-important opening gaps. After recording the high of 6243, the slow and grinding downward movement to the previous day's close started. But this move was aborted at 6185 on the back of the positive momentum in the European markets. However, the afternoon rallies were unable to trade above the open at 6227, which almost coincided with previous day's bar high. The close was at 6211.    

 Nifty Futures - Daily Chart


Market seemed to be indecisive on Wednesday. Stocks from the rally leading sectors, Banking and IT  seemed to be not interested in the rally. Now, the test of high has been enacted and the result so far is inconclusive. ( Just read that the next market direction is unknown ). 

This blog had written that traders may watch out for the hitherto laggard Reliance on Wednesday's trade. The market heavy weight stock Reliance  provided the afternoon's positive momentum almost single handedly.  It seems that any further rally from these level may require further participation from the Reliance stock. Traders may again watch out for Reliance stock in the next few days  to get a better handle on the market direction.

Many readers who might not have access to the charts might be interested in knowing the all time highs of the Indian stock market indices. The following 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. The all time high of BSE Sensex is at 21207.

 All Time Highs




Nifty Valuations
 
 
 

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 25.72, 3.89 and 1.01 as on 6th 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   6th October, 2010 is given below :
 
 
The Momentum Signal has indicated +100 values in respect of the Nifty Futures and  Nifty Index. The BSE Sensex closed with a Momentum Signal value of +50.

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  7th 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.
 
Stop loss for the re-entered long position is at   6116, which is 2.1 % below the high of 6248. 
 
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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