Thursday, January 6, 2011

Update for 6th January 2011

       The New Year Party's Over ?

Banks played spoil sport for the second day in succession on the back of the increasing awareness in the market about the need for further increases in the interest rates in the economy. We had indicated in the previous post that any more damage to the charts of the banking sector sector stocks would seriously affect the present uptrend itself in the new year. It seems that the time  to decide the fate of the present uptrend  has arrived by now. Any further decline in the Nifty futures might force the Momentum Signal system to indicate an exit of long positions.

Nifty futures opened slightly lower on Wednesday at 6151 and this open became the high of the day later on. Almost immediately on the open, Nifty futures went to trade below the previous day's low and never tested the open. The contract traded in a tight range between 6120 and 6140 for most of the morning session. It broke below the 6120 mark and tested the previously indicated reference level of 6090 in the afternoon. It recovered to 6120 from the support at 6090, but closed lower at 6098 for the day.

Nifty Futures - Intra-day Chart    

 Nifty Futures  - Daily Chart 

We had indicated in the previous post that the pattern of two red candles with a similar high and the second one with a lower low, might be the indication of a correction. But what was not sure then and even now is whether this correction will prolong to indicate a reversal of the intermediate uptrend. The Stop Loss level for the long positions in the Nifty futures may be set at 6079 ( ie Swing High 6210 minus 2.1 % of 6210 ). Therefore, Thursday's market action may decide the fate of the present uptrend as of now. Any further breakdown in the charts of the financials, especially the major public sector banks, may take the Nifty and the junior Nifty indices to lower levels. On the other hand, only a few stocks from the IT, FMCG, Pharma together with the Reliance stock are showing any kind of strength at present. If the present condition of stocks trading in divergent directions continue, it may also lead to the Nifty futures trading in a flat trading range. The important reference levels available for intra-day analysis and trading are 6000, 6030, 6090, 6130, 6175, 6250 and 6330.

.          Nifty Options Scene

Consequent to the losses in the market, the January series Nifty options Put Call ratio ended lower at 1.36 times as on  5th January 2011. Significant additions to call option open interest were seen at the 6200 and 6100 strikes. The highest number of Nifty Call option OI has moved down to 6200 from the 6300 strike. The second highest Call OI is at 6300.   The highest open interest ( OI ) of Put options is still at the 6000 strike. Some additions of Put OI was also seen at the 6000 and 5900 strikes.  The Nifty option OI positions seem to be suggesting a range bound market between the range from 6000 to 6250 at present.. The India VIX closed at 17.88, up 5 %. The following option Pain chart also seems to indicate mostly a range bound market. 

 Nifty January Option Pain Chart  

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 24.26,  3.83 and  1.03  respectively as on  5th 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 value has decreased to +80 levels as on the close of trading on Wednesday.  The above Momentum Signal spreadsheet also shows the progress of the present uptrend, which started with  a buy signal 14 trading days ago, ie on 16th December, 2010.

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  6th 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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