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Thursday, November 11, 2010

Update on The Ultimate Momentum Signal - 11th Nov. 2010

  A Low Volume Inside Day and What to Expect Now ???
Even though it was expected that the Nifty future is poised for a breakout above the 6350 level, nothing of any significance happened in Wednesday's trading. Nifty future opened lower at 6320 on Wednesday,  in tandem with the international cues and traded listlessly for the entire trading session. The trading  was also limited to a very narrow range of 37 points. The day's high of 6332 coincided with the previous day's morning session high. ( Please read the previous post for more details ). It also coincided with the previous day's adjusted close price of 6333. However, the Nifty futures failed to reach the previous day's last traded price in Wednesdays trading thereby leaving a subtle gap between these two. These kind of subtle gaps may indicate weakness ahead and have indicated reversals earlier. However, it seems that these kinds of subtle gaps have limited value for securities which trade in a trading range. The last trade of the day was at 6310. Since the day's candle ( ie. trading range ) was restricted to the previous day's range, it is called an inside day candle. Such candles indicate indecision by the market  and sometimes, traders trade them by initiating trades on both the ends of such candles.
  
     Nifty Futures - Daily Chart


As indicated earlier, the occurrence of an inside day candle has not at all changed the technical position of the market. The chances of a breakout above or below the inside day candle remains more or less equal and will depend on international cues. However,  traders may  exercise caution about a break below the Wednesday's low since it may trap those traders who may have expected a breakout upwards. Any lower close will indicate an exit of the long positions entered at the 6150 levels in accordance with the Momentum Signal System. Traders may note that the last buy signal has resulted in a maximum favorable excursion of  around 200 points in the Nifty futures. The trading stop at present may be set at 2.1 % below the high of 6349, which is  6216. ( High 6349 minus 2.1 % of 6349 = 6216 ).


Indian Stock Markets - All Time Highs 


The table above shows the all time high values attained by the Indian stock markets. Even though the indices, Nifty and BSE Sensex are yet to record any intra-day new all time highs, Nifty futures and both the indices have recorded their highest closing rates as on 9th November and on the Diwali day.

 Nifty Fundas
 
The trailing PE multiple of the Nifty index has been quoting above the 25 mark for some time. The 25 PE mark  can almost  be termed as the starting point of the bubble territory


 The above table shows the latest data related  to Nifty trailing valuation, sourced from the NSE, India website.  The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.44,  3.94 and  1.00 as on  10th 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  10th  November, 2010 is given below :
The Momentum Signal has remained at the maximum possible value of +100 for the sseventh consecutive day in respect of the Nifty futures.
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  11th 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.

As already stated elsewhere on this post, a lower close on Thursday may force the system to indicate an exit of the existing long positions. Traders may also use the system stop in intra day trading to protect the minimum profits. 
 
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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