Tuesday, January 25, 2011

Update for 25th January 2011

  Is This the Start of an Uptrend ?

After spending an entire week for trading inside a narrow trading range, Nifty futures finally tried to rally and test the upper resistances. Though the Nifty contracts couldn't surpass the 5775 resistance area on Monday, at the very least, it tested  the previous weeks' high of 5754 and closed at 5741. Intra-day volatility levels  also  lessened on Monday to levels which is normally seen in slow rallies. The surprising fact is that the rally was actually lead by the interest sensitives and the laggards were Reliance, Bharti, Wipro etc.

Nifty futures opened flat and tried to test the previous inside day's high, right in the morning session. Once the previous day's high was taken out, the nifty contracts  tested the previous week's high. A small intra-day correction saw the Nifty futures revisiting the previous day's high in the middle of the trading session. The close was near the high of the week long trading range.

Nifty Futures - Intra-day Chart    

Nifty Futures  - Daily Chart    

Nifty future has closed at a six day high as on Monday, just before the release of the monetary policy review  on Tuesday by the RBI. As already mentioned elsewhere on this post,  Monday's rally has been achieved primarily by the strength seen in the oversold interest sensitive sectors. According to the indications so far, it seems that the market has already discounted an increase of 25 basis points ( 0.25 % ) in the REPO and reverse REPO rates by the RBI. Therefore, if the RBI action is on the expected lines, market may continue with the fledgling rally seen on Monday. However, the fact that RBI has been behind the curve in raising rates by at least an year and the political heat being faced  by the ruling front due to galloping prices and which have really become unbearable to most people,  may force the RBI to take a harder look at the interest rate scenario.  Whichever the course taken by the RBI on Tuesday, some firm  closes above the 5775 resistance are a must to confirm the uptrend. Similarly, closes below the previous week's trading range are the necessary confirmation for the resumption of a down trend. In case of a rally, the first of  the resistances for the Nifty contracts is at the 5860 - 5875 levels. 

  Nifty Options Scene 

Following the recovery in the market, the January series Nifty options Put Call ratio  increased to a still comparatively low and bearish looking 0.68 times. The India VIX  also declined to 20.17, losing  4.09 %. Significant decrease of January Call options, may be due to covering by the option writers, was seen at the  5600 and 5700 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  significant additions to Put option OI were seen at the 5700 strike. This may be indicating an upward moving support.   The highest open interest ( OI ) of Put options has remained at the 5600 strike as on  Monday. This option OI data seems to suggest that market participants are expecting an expiry between 5700 and 5800 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 depicts a similar picture showing the lowest option pain  corresponding to an expiry between 5700 and 5800 at present.

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 22.26,  3.62 and  1.08  respectively as on  24th 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.  The PE multiple has decreased between last Friday and Monday for the said reason. ( 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 already indicated a new buy as on the close of trading on Monday. 

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  25th 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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