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Sunday, January 23, 2011

Update for 24th January 2011



 To Be or Not To Be ?

Yeah, " To be or not to be " seems to be the most important question facing the market as well as the market participants in the coming week !  For example : By the end of the previous week, it seemed that the market itself is facing the question - ' To Rally or Not to Rally ' or " To Fall or Not to Fall Further '.  It seems traders and investors are also befuddled by the sideways trading seen in the previous week. Moreover, RBI will also be finding the answer to it's own similar question - ' To Raise Interest Rates or Not to, and if yes, by how much ? ' All these and a midweek trading holiday, just before the expiry of a series in which one side of the market has already suffered heavy losses,  may make any attempt to analyse the complex and unfathomable situation a friutless affair. Therefore, let this author use some straight talk. It's simple !  This author does not have the slightest idea about what the market may do in the coming week.  But, this author has a piece of advice which could help in such situations - Simply stay away from the market till some clarity ( not of any absolute variety but some relative clarity, because markets never provide the absolute variety ! )  arrives !.  Well this is not the opinion of this author alone !. This is the message given by the market itself through  it's sideways movements as seen in the charts. This is a usual process through which markets undergo when expecting some significant price moving news or events.

 Nifty Futures - Intra-day Chart     




Though the market was expected to test the immediate higher resistance at the 5775 levels on Friday, nothing of that sort ever happened. Nifty future opened lower at 5698 and even the attempts to test the previous day's last traded price of 5722 failed at 5718. As traders are expecting further falls or simply looking out for short trades, especially on any symptoms of weakness, this failure too attracted a  bout of sudden selling in the middle of the day. However, the selling also stopped as soon as it started and no follow up action was seen later on. Therefore, Nifty futures recovered to close almost at the mid point of the trading range at 5700.  

Nifty Futures  - Daily Chart     



The side ways  trading seen on last Friday has resulted in to an inside day doji candle which indicates a pause or a reversal of the prevailing trend. All previously indicated  resistances at 5775, 5865 and higher as well as the supports at 5600, 5550 and lower are still valid, as no significant changes are seen in the technical position of the market except for the arrest of the negative momentum. The 200 day moving averages ( DMA ) of Nifty futures, Nifty and BSE Sensex indices are still offering supports at 5620, 5595 and 18700 in the respective charts.

S&P CNX Nifty Index - Weekly Chart


The top line of the previous trading range in which the market is trading at present ( the middle line seen in the chart above ) is still offering resistance just above the market. Nifty index faces resistance from this line at around the 5775 levels in the coming week. Moreover, any difficulty in passing through this resistance may again  force the market to test the 200 DMA below, which, if succeeded, may lead to a test of the lower support line of the old trading range in the medium term.

  Nifty Options Scene 

The January series Nifty options Put Call ratio  fell further on last Friday to an unusually low and bearish looking 0.63 times.  However, the India VIX  also remained almost unchanged at  21.03, gaining just 0.10 %. Significant decrease of January Call options, may be due to profit booking by the option writers, was seen at the  5900 strike and upwards. However, additions to January call option OI were seen at the  5700, and 5800 strikes. 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 5600 strike.  However, the Put OI decreased at the 5700 and 5500 strikes on Friday. The highest open interest ( OI ) of Put options has remained at the 5600 strike as on  Friday. This option OI data seems to suggest that market participants expecting an expiry between 5600 and 5700 strikes at present. However, the unusually low PCR may still leave open the chances for another sharp downwards move by the market.  The January series Nifty Option Pain chart also shows a steep right side, depicting the heavy quantum short calls positions and comparatively low OI of Put options.

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 22.41,  3.59 and  1.09  respectively as on  21st January 2011.  Readers may please note that some decrease in the PE multiple is possible at present, due to the increasing profits figures being reported by the corporates in the quarterly results season. ( 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 :


As indicated in the previous post, Momentum Signal has closed in the neutral zone after being in the highly negative territory for ten trading sessions.    


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  24th 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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