Sunday, December 26, 2010

Update for 27th December 2010

   Nifty future Closes at the Swing High, Now What ?

In the last posts of the previous week, this author had indicated that Nifty futures may trade sideways in the low volume holiday market, with a mild positive bias. Last Friday, Nifty futures opened slightly lower  than the previous day's last traded price and almost immediately recorded a low of 5966. This low was 5 points below the previous three trading day's low at 5971. Since low volume holiday markets are liable to record freak trades, this author had also indicated that traders may carefully observe any breach of the three day  old narrow  trading range as well as the breach of the inside day candle of Thursday. Now let's check the intra-day chart of Nifty futures to find what happened on Friday.  

   Nifty Futures - Intra-day Chart    

Even though Nifty futures opened and traded below the Thursday's inside day candle, the intra-day chart  show that the contract never actually traded below the three day low of 5971 for any significant time periods. The trading remained in a very narrow band between 5970 and 5985 in the morning session. Since, there were no selling even for a revisit of the morning's low of 5966, Nifty future started to recover at around 11.30 AM. The recovery move swiftly went through the previous day's range. Once Nifty future went above the previous day's high, the next logical target became a test of the swing high at 6043. Since the contract never went back to the previous day's range in the afternoon session, Nifty futures almost reached the swing high of 6043 at the fag end of trading and closed near it at 6041. 

Nifty Futures  - Daily Chart     

The daily chart shows the narrow range between 5965 and 6045 in which the trading of Nifty futures was confined in the last four trading days. Even though the contract closed at the highest point in the swing, the recovery seemed to lack enthusiasm and strength because of low volumes. The present recovery has been achieved only with the help of the strength seen in the IT and commodity stocks. The banking stocks were still lagging in the recovery. Therefore, Nifty future may find it tough to break the resistance offered by the previous swing high between the  6090 and 6100 levels, if the present state of the markets continue. Traders may still use the previously indicated reference levels of 5860, 5900, 5940, 6000, 6040 ( changed from 6030 ), 6090 and 6175  for the purpose of intra-day analysis and trading.

S&P Nifty Index - Weekly Chart

The Weekly chart of Nifty Index also shows that range bound markets between the index levels of 5750 to 6075 in which the market have already traded for more than five weeks. It is important to note that this range bound trading happened at a time when most western were undergoing rallies to their new two year highs. This demonstrated reluctance of the Indian markets to rally, makes the medium term direction a bit hazy at present.  

Nifty Option Scene   

The Put Call Ratio ( PCR ) of  December series Nifty options increased significantly to 1.48 times as on last Friday. Some heavy addition to the December Put option open interest  ( OI ) was seen at the 6000  strike to the tune of 1.8 million.  However, reduction of December Call options OI were seen at the 5900, 6000 and 6100 strikes. The highest OI positions in the Call options remain at the 6100 strike. The highest OI positions of Dec. Nifty puts are evenly spread from the 5600 to 6000 strikes.  These OI positions might be indicating  a range bound market between 5900 and 6100 strikes with an increasing upward bias. The increase in the Put Call ratio also favors a positive bias to the market in the short term. The Option Pain chart of December Series Nifty options shown below also indicate a range bound market between the 5900 to 6100 strikes.  

Option Pain Chart - December Series Nifty Options 
Nifty Trailing Fundamentals    

The trailing Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 23.99,  3.79 and  1.04  respectively as on  24th December 2010. ( More information and a long term analysis on Nifty historical valuation are 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 has again closed with +100 value as at the end of trading on  Friday. Readers may please take note that the Momentum Signal system has a tendency to indicate whipsaw trades in range bound markets. This fact has already been  pointed out in various previous posts as well as in the Risk Factors

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  27th 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 to gain a reasonable understanding of the trading system. Please do post your  comments and suggestions on how new  posts can be made more useful.
Cheers and Prosperous Investing and Trading !!!

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