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Wednesday, December 1, 2010

Update for 1st December 2010

  Nifty Future Breaks the Resistance at 5865, But 5940 Stays ! 


The last post indicated that since the Nifty future was unable to surpass the two day high at  5865, the contract may  test of the lower end of the trading range before trying to break above this reference point. It was also indicated that Nifty future has support at the 5750 to 5775 area and the top end of this support also coincides with the 100 day moving average. Now, let's check what happened during  Tuesday's trading. Even though the contract recorded an open of 5850, the actual trades in the initial minutes were below the 5820 levels. It is normal for markets to trade in very flat ranges before the announcement of any major market moving economic data. As the second quarter GDP data was  due by 11.00 AM, Nifty futures traded sideways till that time but stayed inside the tight range between 5915 and the previous day's low of 5788.


Nifty Futures - Intra-day Chart    


   
The announcement of a higher than expected GDP growth data saw the futures contract jumping some 30 points immediately. But what happened after this jump is more interesting. Now, if you are a trader, you might have entered into long positions on the announcement of the positive data. As the low of the previous day  and the then low of the day were almost one and the same, the natural stop loss for these long positions might have been at 5885 or just below this level. As seen in the chart above, the futures contract paused after the sudden bounce and then started to trade lower. It easily went through the then day's low and actually devoured all the stops placed there. Now the question is whether it was a case of stop running ? Any market which intend to trade higher may do this kind of a test of the low, before trading higher. However, what was strange this time was that the market did this after the release of the positive data.  But the best lesson from this episode is another one. Since the market actually double checked the low by this peculiar action, the next  direction available for further trading became automatically clear and it was upwards. Or in other words, the consensus direction  became upwards and the market resumed the rally at a great pace. Since the low has already been checked,  market never even paused at the higher reference / resistance level of 5965 and went  straight to the 5990 levels. From thereon, the future contract still tried  to rally but the pace slowed considerably. It recorded a high  of 5915, but it came back to test the 5965 reference in the middle of the afternoon. The close for the day was at 5990.  

Nifty Futures - Daily Chart    


As already explained in the intra-day time frame discussion, any market may try to test a resistance or support after breaking it. As such,  subject to the circumstances, Nifty future was expected to test the previously broken support of 5940 after taking it's support at the 100 DMA. This process is on at this point of time. Steady closes of the Nifty futures above the 5940 level will enable the contract to trade in to the previous trading range and this is necessary for the indication of a trend change.  Therefore, the important higher reference points  for the Nifty future are at 5940 and at 6000. The lower reference points remains at 5860 and 5775.

Nifty Option  Scene  

The December series Nifty options PCR declined slightly to 1.26 on Tuesday, due to significant and random additions to the Call and Put open interest between the strikes from 5500 to 6500. 

Nifty Trailing Fundamentals          


The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 23.39,  3.69 and  1.06 as on  30th  November 2010. Readers may please note that the periods in which the trailing PE Ratio of  the Nifty index persistently  stayed above the 25 mark  were limited to just  two occasions in the years 2000 and 2007-08. And both these periods coincided with the highs or bubble periods 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 ). 


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 :
The Momentum Signal values have started to recover from the maximum negative value  of -100 to the indicated higher than -100 levels but lesser than -50 mark.

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  1st 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 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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