Friday, January 21, 2011

Update for 21st January 2011

Another Intra-day Bounce, But What Now ?

We used the title " A Tentative Close, But What Now " for the last post, because of the peculiar nature of market close seen on Wednesday. We said that, though the bearish engulfing candle may be indicating an immediate down move, the tentative close might be an indication for a move in either direction. Therefore, traders were advised to be extra careful and alert for fast movements in either direction on Thursday or the following day. Nifty futures opened below the previous day's trading range due to the negative international cues on Thursday. The futures contract tried to recover, but the move failed at around the 5680 mark. Another tentative down move saw the contract almost revisiting the recent swing lows. However, the tentative down move in the morning session also lacked volumes. Therefore, the ensuing recovery  actually  became a frantic short covering rally which traveled around 100 points in just one and a half hours. Nifty futures closed at 5722 after recording a high of 5744.

 Nifty Futures - Intra-day Chart

Nifty Futures  - Daily Chart  

Nifty futures have already spent more than four and a half days trading  inside a tight trading range between 5640 and 5750. The support offered by the 200 DMA at around the 5610 - 5620 area has  stood firm so far,  in the test of support on at least three occasions  in the past five days. If the overseas cues permits, Nifty future may test the higher reaches of the trading range between 5750 and 5775 levels as a follow up action on Friday. In case the Nifty contracts breaks these resistances, it may reach the next higher resistances at the area between 5850 and 5875 levels.  However, barring further recovery above these levels, the chances of another test of the 200 DMA and even a break of the same may remain in the medium term. 

  Nifty Options Scene  

The January series Nifty options Put Call ratio  remained unchanged at an unusually low and bearish looking 0.68 times as on  20th January 2011.  The India VIX  also remained almost unchanged at  21.01, losing just 0.38 %. Significant decrease or covering of January Call options was seen at the  5700 strike. The highest number of Nifty Call option OI is still at the 6200 strike, even though many lower strikes from 5700 and upwards have significant OI outstanding. Some  more additions to Put option OI were seen at the 5500, 5600 and 5700 strikes. The highest open interest ( OI ) of Put options has remained at the 5600 strike as on  Thursday. This option OI data seems to suggest that Nifty may trade sideways 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 22.59,  3.60 and  1.09  respectively as on  20th 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 -80, indicating  the waning  of negative momentum after indicating the maximum negative momentum for nine consecutive trading days. In the absence of another heavy fall on Friday, the momentum signal may indicate neutral momentum as on the close of market on Friday.  

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  21st 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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