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Monday, November 29, 2010

Update for 29th November 2010

  Will the Market Hold on to the Support of 100 DMA ?

The Indian stock market is in an intermediate term downtrend. This is a fact because many popular stocks were already  declining even before the start of the present downtrend. The pace and magnitude of the selling and the bunched explosion of negative news were beyond the expectations of most investors. We had indicated in the post dated 13th November that the market may get support at the 100 DMA at around the 5750 levels,  even though we were unaware of any reasons for the continuation of the down trend  at that  time. However, it was stated that the downtrend may continue for some unknown reasons. Last Friday's sell off in the first half even seemed to indicate that there are no reason for the stocks to trend upwards. However, any uptrend can  be confirmed only when the market starts to form higher lows and higher highs in the first step and then, the low stays. 
 

Nifty Futures - Intra-day Chart  


Friday's  intra-day chart of Nifty futures is marked with the important reference levels indicated in the post dated 26th November, 2010. Nifty futures opened between the 5820 and 5860 reference points. The initial test upwards ended just above the 5860 level and the sell off from there, traded through the 5820 level to
reach the 5775 level. The minor support at 5775 saw the Nifty futures testing the 5820 levels again. However, upon failure of these tests and in tandem with the heavy sell off seen in the weak stocks, Nifty futures broke the 5750 level and recorded the day's low at 5727.  However, Nifty futures recovered immediately and stayed above the 5750 level thus paving the way for recoveries from this level. Successive recovery efforts were seen temporarily reversing from the 5775, 5800, 5820 and 5845 levels. However, Nifty futures made an intra-day double top at around the 5845 level and corrected from there to reach almost the 5750 level before closing for the day at 5772.

Nifty futures - Daily Chart


The last close of Nifty futures, Nifty index and BSE Sensex have been just a tad below their respective 100 day moving averages. As the market has already recorded lower closes successively for the past four trading sessions, there are chances of a higher close or at least a pause in the downtrend movement to trade around the 100 DMA for some time. In case of a recovery, the major resistances are at the 5860 and 5940 levels at present. In case the futures  fall  further in the first half of the new week, the next minor support is at the 5650 level coinciding with the earlier formed gap between 5640 and 5670 which can be seen at the left side of the chart . The lower supports are at 5550, 5450 and 5340 levels. ( Please see the rectangle in the chart. ) The 200 DMA of Nifty futures is at the 5450 levels.

Nifty Futures - Daily  Moving Average Chart 


Nifty Index - Weekly Chart


The weekly chart of Nifty index shows the formation of 'three black crows' ( three big red candles in the chart ) indicating a reversal of the uptrend. It also shows the support provided by the top line of the previous one year old trading channel.

The coming week will see the expected unveiling of the Ireland bailout plan, the saber rattling of N. Korea against the S. Korea - US  war games and the new stories and chapters of the new scam season if any. If it turns out that the any of the said loans have been used by any of the companies for stock manipulations and insider trading, then the market may see even deeper corrections from hereon.  However, in the absence of any negative news immediately and the announcement of the Ireland bailout as expected may pave the way for another retest of the 5860 level. Therefore, the only certainty about the market at present is the added uncertainty. Traders may carefully watch the market action before any trading action and that too in lesser quantities to reduce the higher risk levels. Part booking of profits and ensuring strict stops for the balance positions at the cost, is called for at present. In addition to the earlier indicated intra-day levels, traders may  add the Friday's low of 5725 and 5650 levels as reference points for intra-day trading.   

Nifty Option  Scene  

The Put Call Ratio( PCR ) of December series Nifty options ended at 1.28 times as on last Friday. Significant addition of  Dec. Put open interest was seen at the 5600 strike level. Similarly, significant additions to Dec. Call open interest were seen at the 5800 and 6000 strikes.  

Nifty Trailing Fundamentals   



The trailing PE of Nifty index has fallen below the 23 mark as on Friday. However, even this level of trailing valuation is at the top end of the historical valuations of the Index.  The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 22.96,  3.63 and  1.08 as on  26th  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  26th  November, 2010 is given below :
The Momentum Signal values of the Nifty Future, Nifty Index and BSE Sensex were at -100 as on Friday'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  29th 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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2 comments:

Anonymous said...

Thanks for a detailed study of your analysis. This is so much better than most people just writing "calls" to buy or sell without attaching any reasoning behind it. Today is my first day to read your post, but looks like I may become addicted to your post. Thanks again.
"kaps at stocksbuddy"

momentumsignal said...

Thank you "kaps at stocksbuddy"