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Friday, November 19, 2010

Update on The Ultimate Momentum Signal - 19th Nov. 2010

Nifty Futures Rebound From Support at 5940 - 5950 !!! 


Just as this blogger had written in the last post titled "Nifty Futures Approaching Support at 5940 - 5950" , Nifty futures rebounded from the support area on Thursday. The Asian markets were trading with positive bias as indiacted in the previous post when the trading opened in the Indian markets on Thursday. However, a bout of selling which came about in the banking stocks on the back of some doubts about the exposure to micro finance and real estate sectors lead to the Nifty futures' fall to the previously indicated support area. Depending on the entry point, the sell signals indicated at  6084 and again reiterated at 6134 levels have lead to maximum favourable excursions ( read possible profits ) of 169 and 209 points. Even if the positions were covered at the earlier widely known support at 5940, it would have yielded to net profits of  140 and 190 points.  Even if a trader would have strictly followed the system rules and set up the trading stop at 5049, against the short in Nifty futures,  even then  it would have earned handsome profits. And if a long position was established at the support at 5940  expecting the bounce as indicated in the previous post, it also would have gained another 100 points on Thursday itself.

 


Nifty futures opened at 6018 on Thursday even though the index was managed some how to open at a very high level at 6076. After trading flat for some time, Nifty futures started the slide to fall to the support at the 5940 - 5950 levels. In fact the speed of the fall was such that the futures even broke the 5940 level by 15 points to establish the day's low at 5925. It has been reiterated time and again on this blog that a break amounting to  some 10 to 15 points of any major support or resistance in the Nifty futures can not be taken as a valid signal for a confirmed breakout. Such temporary breaks will be confirmed only when the futures trades further in to the direction of the break. Otherwise such breaks could be treated only as bouts of stop running or a simple test of the the reference support or resistance. As such, Nifty futures reversed from just below the support area and the successive rallies even saw the futures breaking the then daily highs. After encountering some mild corrections from the day's high of 6057, the close was at 6035.

Nifty Future - Daily Chart    


The daily chart of the Nifty futures shows the reversal from the support area in the form of a green hammer candle which is almost like a long legged ( tailed ) doji. The long leg of the candle is seen touching and piercing the support mildly. Both these types of candles indicate reversals and presence of supports. Even though the resumption of the correction can not  be ruled out as of now, Nifty future, seems to be poised to make a recovery to the 6080 - 6090 levels and  if successful, to test the resistance at  6175. However, this may depend on the  day today cues from the international markets. The expectations of a bailout of Ireland and the resultant overnight rally seen in the European and US markets favours this scenario.

 Nifty Fundas     

The present sell off  has lead to fall of the trailing PE of the Nifty index below the 24 mark from Tuesday. The table below shows the latest data related  to the 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 23.90,  3.78 and  1.04 as on  18th  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

he updated spreadsheet showing the Momentum Signal as at the close of the trading on  18th  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  19th 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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