Wednesday, January 19, 2011

Update for 19th January 2011

    Will the Tentative Up Move Continue ?

Following the formation of a narrow range inverted hammer candle on Monday, Nifty futures opened higher on Tuesday as expected. We had indicated in the previous post that the inverted hammer candle may be indicating a minor or a major reversal from an area which is just above the 200 DMA. Nifty futures opened at 5678 and almost immediately went on to test the immediate higher minor resistance at 5725. The Nifty contracts corrected from there to record the day's low of 5772 in the morning session itself. Nifty futures spent most of the trading day between 5680 and 5710 before moving upwards in the last half an hour of trading. The up move seemed to be a tentative one and was lacking much enthusiasm. ( Well this is a personal opinion and such opinions can  be wrong also. )

 Nifty Futures - Intra-day Chart

 Nifty Futures  - Daily Chart  

The tentative recovery may face the next resistance at around the 5775 levels. This area coincides with one of  the higher lows from where the market reversed earlier and also with the top boundary of  the old trading channel, which was broken on last Friday. Since, the market took support of this area twice earlier and reversed from there, this area may act as a strong resistance. The next higher resistance is at the 5850 to 5875 area. According to the indications so far,  firm closes above the 5875 levels are required to confirm the reversal.

  Nifty Options Scene  

In spite of the market staging a recovery, the January series Nifty options Put Call ratio  decreased slightly to a  bearish looking 0.71 times as on  18th January 2011. Following the rrecovery, the India VIX  decreased to 21.46, losing 8.95 %. Some additions to the January Call options ( or call writing ) were seen at the 5900 strike. The highest number of Nifty Call option OI is still at the 6200 strike even though many lower strikes  also have significant OI outstanding. Some additions to Put option OI were seen at the 5500 strike.  However, covering of short options, both calls and puts were also seen at various strikes. The highest open interest ( OI ) of Put options has remained at the 5600 strike as on  Tuesday.  This option OI data seems to suggest that Nifty may trade in a broad range between 5600  and 5900 as of now. The January series Nifty Option Pain chart also shows a steep right side, depicting the heavy short calls positions which might act as a resistance to the recovery.
Nifty Option Pain Chart - January Series  

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 22.66,  3.61 and  1.09  respectively as on  18th 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 closed with a value of -100, indicating maximum negative momentum for the eighth consecutive 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 19th 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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