Friday, November 26, 2010

Update for 26th November 2010

 Scam and the Derivative Expiry Lead to Another Sell Off !!!


In the last update for the just ended trading day, based on the then positive overseas cues and the option open interest positions, we had indicated that Nifty future may try to trade towards the 5900 strike and close near or around that strike. However, it was not to be. The November series Nifty futures expired exactly a strike lower at 5800, even though it seemed till 3.00 PM that the expiry could be at the higher indicated strike at 5900.  

Now a few words on the just concluded derivative expiry. It is so difficult  to believe that the market is not managed on the derivative expiry after observing the strange movements which starts at 3.00 PM and which literally forced the Nifty index to close exactly at a round option strike price. In a normal market situation how much probability is there that the half an hour average of an index ends up within less than 0.25 paise of a round option strike at 5800 ? And that too after the index falling 20 points below the round figure and then rising exactly 40 points to end up at 20 points higher than the strike at 5820. This author drops off the subject with a comment : '"Yeah, strange things happen !!! " 

Nifty Futures - Intra-day Line Chart  



The important levels or reference points indicated in the previous post for the benefit of the intra-day traders of Nifty futures  were, 5940, 5900, 5875, 5860, 5820 and 5750. A word or two about the selection of these levels. First of all, there no secrets here. These are either of just the previous intra-day reversal points, day time frame opens, lows, closes etc. Anyone who observes the chart and the market action can find out these reference levels by  practice. That's all about the reference points on the condition that it takes a lot of time and observation to learn the trick. Trading is an area where no maps are readily available. Traders are forced to find their own mile stones in the unmapped area and therefore, these carefully selected  reference points or mile stones can be beneficial to them.

Thursday's market action is analysed here on the basis of these reference levels. Nifty futures opened almost at the 5875 reference point. The initial trading range was between the 5900 and 5860 reference points. First, the contract  tried to trade upwards. And then it tested the lower boundary. On emergence of buying at the lower boundary, futures tried to break above the 5900 - 5910 boundary. It failed to cross this boundary with a benefit of doubt, and therefore, the trading remained inside the range till around the 12.30 mark. As repeated attempts of the futures were finding it difficult to trade upwards, this attracted sellers and the market broke the 5860 mark and reached the 5820 reference level. The market bounced of this reference level and   reached almost the 5875 level twice. As already stated, it seemed, till around the 3.00 PM mark, that the market may close higher. However, concerted selling action and some follow up fine tuning action of buying in the last minutes saw to it that  the Nifty futures expired at the round 5800 strike. The last trade of the Nifty index was at 5823 and the LTP of the December futures was around 5860. In addition to the earlier reference points, traders may also use the 5790 low of Nov. futures as a new reference point. 

Nifty Futures - Daily Chart
Nifty future is still in the downtrend even though some major world indices to the exception of China and Hong Kong have stopped falling or is in the process of  reversal. The fall in the Indian market is due to the local issues and over valuation. The 100 day moving average of the Nifty futures and the Index are at 5775 and 5765 levels at present. Therefore, market may get supports at these lower levels in the short term.  
Nifty November Series -  Option Pain Chart


The option pain chart of the November series Nifty options is shown above as a follow up. It doesn't serve any purpose other than academic purpose or the curiosity value. The Put Call Ratio of December series is at 1.38 times.  The option pain chart of the December series Nifty options is also given below, even though it won't be of much help so early in it's life cycle. This chart may look a bit very strange because of the existence of some LEAPS or long term options outstanding at the Nifty 2000 strike.  ( LEAPS means - Long Term Equity Anticipation Securities - Or just long term options with a new name as a marketing strategy by the Wall Street beacuse the street always loves to make new acronyms !!! )

 Nifty Deember Series -  Option Pain Chart    

     


Nifty Trailing Fundamentals    


Even after the significant fall in the index, the trailing PE is yet to fall below the 23 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 23.15,  3.66 and  1.08 as on  25th  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  25th  November, 2010 is given below :

The Momentum Signal values of the Nifty Future, Nifty Index and BSE Sensex were at -100 as on Thursday's close. 

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  26th 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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