Thursday, January 13, 2011

Update for 13th January 2011

     Another Rally As Expected !

In the last post we had indicated that traders may look for counter trend long trades  in the Nifty futures, especially, on declines towards the 5750 area, because of the highly oversold nature of the markets.and a price rejection at the lower levels. This suggested trade alone would have made an intra-day profit of  more than 100 points in the Nifty Futures. On Wednesday morning, Nifty futures opened flat and as expected, traded lower towards the adjusted closing price of the previous day. This probe went as low as 5711 on the back of the lukewarm economic data.   In spite of the relatively bad IIP numbers, markets staged a fine rally from the three month lows, as expected. 

But before examining the charts, here is an update of the short trade initiated in accordance with the Momentum Signal Trading system. Even if all the rules of the system were followed exactly and the trailing stop was setup at 5840, the last trade would have made a profit of 55 points in the Nifty futures. The trade generated a maximum favorable excursion ( the distance to the maximum profitable area  or low after the short trade ) of 196 points in the Nifty futures. Since the support around the 5725 to 5750 area was  known, a trader could have exited with a profit of at least 150 points in the Nifty futures.  The day's market action is seen in the intra-day of the Nifty futures below.

Nifty Futures - Intra-day Chart  

Nifty Futures  - Daily Chart 

Since the Wednesday's trading action was exactly as the scenario discussed in the previous post, the following is reproduced from the same post. " In case Nifty futures breaks above the immediate resistance area of 5850 to 5865, we may expect a rally even to the 5940 to 5950 area. However, such a rally will not be sufficient, to prove conclusively that the the down swing has ended, given the lack of interest shown by the FIIs on loading up the expensive Indian equities in the new year. Hence, traders may again look for short trades after the expected bounce."   

    Nifty Options Scene   

The January series Nifty options Put Call ratio  improved  to  a still slightly bearish looking 0.87 times as on  12th January 2011. Following the late rally, the India VIX decreased to 21.41 , down 4.12 %. Significant  additions to the January Put options were seen at the 5600 strike. Some covering of  Call OI was seen at the 5800 and 5900 strikes.  The highest number of Nifty Call option OI is still at the 6200 strike. The highest open interest ( OI ) of Put options have moved down to the 5600 strike as on Wednesday. This option OI data seems to suggest that another down move is still possible towards the 5600 strike, on the completion of the present short covering rally.

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 23.41,  3.70 and  1.06  respectively as on  12th January 2011. ( 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 :

The Momentum Signal has also closed with a value of -100, indicating maximum negative momentum for the fourth day. 
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  12th January, 2011, 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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