Tuesday, November 23, 2010

Update for 23rd November 2010

Nifty Future Escapes Unhurt for the Time Being !!!

Last Friday, Nifty futures closed at a two month low below the support level of 5940. Even though this blog had pointed out that the sudden break of the support and a resultant sell off was of unknown origin and was related to the then evolving fluid situation on the political front,  it was still doubtful  to make a firm call about the immediate market direction. Hence it was pointed out that traders may observe the market action between the 5940 and 5950 levels of the Nifty futures to get a better idea of the market direction. It was also stated that if the Nifty future sustains above this resistance area, it may test the 6090 - 6000 minor resistance very easily.

Some readers might be curious why the past intra-day action is described almost regularly in the posts. The only reason behind these descriptions are the fact that these kinds of analysis is a great help in learning the process of real time analysis of market action.  

Nifty Futures - Intra-day Line Chart

On Monday morning, when the trading started for the new week, the international cues were generally positive. The SGX Nifty futures were quoting with gains of some 40 - 50 points before the Indian market opening. Therefore, Nifty future opened higher at 5930 with a gap. This opening rate of  5930 was incidentally between the Thursday's low of 5925 and the major support turned resistance at the 5940 levels. Since the market opened just below a major resistance and that too with a gap from the previous day's last traded price, generally day traders may fade ( sell in to ) the higher open. So the higher open was sold in to by the traders but the resultant fall was arrested at around the 5910 levels. The intra-day chart of the Nifty futures show the said fade trade. It also shows the recovery from the lows which lead to the break above  the 5940 - 5950 resistance. This break out was sustained above the 5940 level for an hour. Since the gain in this period wasn't as much as expected from a short covering rally, doubts arose about strength of  the breakout. This lead to a test of the of breakout area. Actually, this test of the support traded below the 5940 area to reach 5935. When selling accompanying this test of support dried up, the breakout was confirmed and the Nifty resumed the rally at a much higher pace. As ponted out in the previous post, Nifty futures  actually sprinted from 5950 to reach the 6000 levels. This rally was extended at a lower pace to a high of 6027  and last trade was at 6010.

Nifty Futures - Daily Chart 

If you observe the period of the uptrend days  seen on left end of the chart, it can be seen that Nifty futures never tried to test the low of a previous day on the following day continuously during the  strong uptrend.  Similarly, it is seen that the opposite process has happened in the present downtrend for some seven consecutive days starting from 9th Nov. 2010. However, the latest bar / candle has been able to trade above the previous day's high by some 14 points.

In spite of the recovery and a close above the major support of 5940, the fact remains that the market is still in a down trend and the latest close is still in the bear territory. Even though the European markets were trading positively when the India markets closed, the western financial stocks and commodities were losing in the overnight trade on the back of increasing fears about the sovereign debt problem and the bail out of the Ireland economy. Therefore, another retest of the support below and even a resumption of the downtrend itself can not be ruled out as of now. All recoveries in this downtrend has been limited to a normal 2.5 % range of the lows so far. Therefore, the end of the downtrend is yet to be indicated by the market action either by a momentum reversal or by a rally to higher levels. Therefore, traders may watch the market action near and just above the highs of Monday's candle as well as at the support level at 5940 - 5950 on Tuesday, depending upon the market conditions to gain insights on trading. In case of a further up move above the Monday's high of 6027, Nifty future may reach the next higher resistance area at 6080 - 6100.

The November series Nifty option Put Call Ratio ( PCR ) has slightly improved by 0.05 % to reach  a still below normal 0.80 % as on Monday. The following Option Pain chart ( see the previous post for an explanation of 'option pain'  ) shows that the expiry could be any where between 5900 and 6100 levels. 

Nifty November Series -  Option Pain Chart

Nifty Trailing Fundamentals

The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 23.98,  3.79 and  1.04 as on  22nd  November 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  November, 2010 is given below :

The Momentum Signal values of the Nifty Future and BSE Sensex were at -100 as on  Monday's close. However, the Signal value of the Nifty index improved to the -80 levels on Monday.

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   23rd 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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