Monday, November 1, 2010

Update on The Ultimate Momentum Signal - 2nd Nov. 2010

    November Starts with a Bang !!! 

The last post was titled ' Indices rebounds from support ' for two simple reasons. The first reason was the appearance of the  late rally seen on last Friday from the trend deciding intermediate level support. The second reason was the shape of the candlestick with a very long tail at the bottom which almost touched the support.  However, it was not clear whether the markets would rally further or retest the supports again. As the trading started for the new week on Monday, the Asian indices and SGX Nifty futures were trading with very good positive gains. Nifty futures opened at 6105 on Monday and moved upwards to test the widely known resistance at the 6175 levels. Monday's high was just 3 points away from the said resistance. The last trade was at 6156.

Nifty Futures - Daily Chart

The expected correction from near the all time highs might be turning out to be a flat one. As already stated in many previous posts, if the Nifty future is able to break the resistance at 6175 levels, it may test the resistance area between 6230 and 6250. The higher resistances are at levels between  6325 and 6350 which corresponds to the all time highs reached in January, 2008. Tuesday will see the policy action by the RBI. The RBI is expected to tighten the interest rates by another 25 basis points. Any higher levels of rate hikes might be considered as adverse by the market. The midweek will also see the US FOMC meeting and the  much expected Fed's quantitative easing monetary action. Any adverse reaction to the Fed action might lead to an upset to the current worldwide equity rally which is fueled by the cheap and easy money from the developed world.

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.  Even though the multiple quoted just below the 25 mark on some days recently,  PE multiple has again started to quote above the 25 mark.
 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 25.12,  3.85 and 1.02 as on 1st 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  1st  November, 2010 is given below :
The Momentum Signal in respect of Nifty future and the Sensex were at +50 levels indicating buy as on Monday. However, the signal value in respect of Nifty index was at +30 as on Monday. Readers of this blog are requested to understand that the Momentum Signal system is susceptible to more whipsaws when the market trades in ranges.

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  2nd 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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