Wednesday, December 15, 2010

Update for 16th December 2010

   Nifty Future Declines On Bear Raid !  

It seems that the season of scams is here to stay. On Wednesday too, there were reports about new CBI raids related to the ongoing 2G scam investigations. It seems that bears also have made it a habit to raid the Dalal Street on all days some CBI raids take place. It also seems that the market is more susceptible to bad news now a days, may be because of the extended valuations and the questionable governance standards employed by many a corporates. 

On Wednesday, Nifty futures opened at 5951, just 7 points below the previous day's last traded price. Immediately after the open, it sold off to trade below the reference level of 5940 and almost reached the lower reference level at 5900. Since the contract sold off without trading at the previous close or the last  traded price,  a recovery ensued by around the 11.00 AM mark. However, the recovery failed after reaching to a high of 5955, thereby leaving very small subtle gap between the day's high and the previous close. Regular readers of this update might be familiar with this kind of subtle gaps which at some times indicate further weakness in the markets. However, such gaps may not have much predictive ability in range bound markets. Trading remained range bound in the 5900 to 5940 area till around the 1.30 PM mark. However, when European markets too went in to the negative territory, Nifty futures too broke the 5900 mark to record a low of 5873 in the afternoon session. However, the close was at 5896.  

  Nifty Futures - Intra-day Chart   


 Nifty Futures - Daily Chart  

Nifty future has been trading mostly in a 200 point range between 5800 and 6000 levels for the past 20 trading days. The outer boundaries of this range seems to at the 5700 and 6100 levels. The major negative factor seen on the chart is the formation of lower highs.  If Nifty future is unable to break this pattern of lower highs, the chances of it breaking the lower boundary of the range might be increasing further. Except for this negative factor, not much reasonable analysis is possible till the market breaks above or below the wide trading range. The 100 day moving average of Nifty futures has moved to 5850 levels now, coinciding with the reference level at 5860. Traders may use the previously indicated reference levels, as no significant change has happened to the technical picture of the market. 

Nifty Options  Scene    

On the back of the losses suffered by the market, December series Nifty options Put Call Ratio ( PCR ) declined to 1.2 times on Wednesday. Significant reduction in the Put option open interest  ( OI ) was seen at the strikes at 5600, 5800, 5900 and 6000 strikes to the tune of 12.8, 3.3, 5.5 and 3.0 lakhs respectively. However, the changes in the Nifty call OI remained insignificant except for an increase of 3.6 lakhs OI at the 6100 strike. The highest OI levels of Calls and Put options are placed at the 6100 and 5700 strikes indicating the outer boundaries of the earlier indicated trading range. 

Nifty Trailing Fundamentals 

Nifty trailing valuations also decreased on the back of the losses on Wednesday. The trailing Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 23.51,  3.71 and  1.06 as on  15th December 2010. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page ).  

Latest Ultimate Momentum Signal

The updated Momentum Signal spreadsheet showing the latest signal values of the current month Nifty future and the Nifty index is given below :
Momentum Signal system has indicated another sell as on Wednesday's close, on the basis of the last traded price of Nifty futures and the underlying index. However, BSE Sensex has closed with neutral momentum values. Readers may please take note that the Momentum Signal system has a tendency to indicate whipsaw trades in range bound markets.

Projected Momentum Signal Close Values

The projected levels of 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  16th December, 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 the figures are not intended to be interpreted as 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.

Readers are requested to go through the Risk Factors, Risk Analysis, Position Limits and FAQs pages of this blog to gain a reasonable understanding of the trading 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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