Thursday, February 10, 2011

Update for 10th February 2011

   The Day of Capitulation Over ? 

  • Nifty futures opened flat on Wednesday and for most of the morning session, the futures contract tried to recover.
  • However, the Nifty contracts kept on trading  flat on the back of some strength seen in some of the index heavy weights. All attempts to trade higher ended below the previously indicated minor resistance of 5350.
  • However, the so called popular trading shares or midcaps kept on falling heavily, even in the morning session. 
  • Nifty futures also joined the capitulation of the midcaps in the afternoon session. Nifty contracts fell to the lower minor support of 5225. However, Nifty futures recovered from the low to close at 5284 for the day.
  Nifty Futures - Intra-day Chart 

    Nifty Futures  - Daily Chart 

  • Wednesday's trading range remained  exactly between the two previously indicated reference levels of 5225 and 5350. ( Please click here to read the update for 9th Feb.)
  • Wednesday's market action resembled  a capitulation of sort in the popular stocks. But the Nifty heavy weights were seen trading normal and were, in fact, supporting the market from further falls. Or in other words, no such capitulation was seen in the index heavy weights. ( It seems that some institutional support was being instrumental in the prevention of a capitulation of the heavy weights ! ).
  • All strong down trends end and reverse when even the last of the weak bulls liquidate their loss making long positions, in a final act of surrender to the market fury, which in other ways is called a capitulation. When all loss making positions are moved to the stronger hands, markets recover. However, when such an event happens, even the better stocks of the portfolio are also liquidated to compensate the heavy losses affecting the whole market.  Now, whether the sell off seen in the popular stocks can be considered as a capitulation indicating the end of the present down trend is anybody's guess.
  • All previously indicated reference levels, ( 5125, 5225, 5350, 5450 etc ) are still valid for intra-day analysis and trading. 

  Nifty Options Scene  

The February series Nifty Options Put Call ratio ( PCR )  fell further to 0.87 on Wednesday following the sell off.  Though the market sold off, the India VIX  remained orderly. But the VIX index went up to close at 25.24, up  2.02 %. Significant Put writing  ( increase in open interest )  was seen at the strike at 5000. Significant Call writing was also seen  at the strike at 5300. The highest  open interest ( OI ) of February series Nifty Call options has remained at the 5400 strike. The highest  February series Put options OI was at the 5400 strike as on Wednesday. However, the strikes at 5100 and 5200 also held similar OI thereby sharing the position of the strikes with the second highest OI of put options.  This option OI data seems to suggest that market participants are expecting the market to trade in a wide range between 5100 and 5400  in the near term.  However, these indications may change any time before the expiry in accordance with the changes in the market.
Nifty Trailing Fundamentals     

The trailing PE multiple of Nifty index has also come down to an almost  yearly low. However, it doesn't mean that stocks have become dirt cheap. It just means that stocks are cheaper in comparison with their earlier prices which actually were very high.  The trailing Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 20.12,  3.32 and  1.19 respectively as on  9th February 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 :
Momentum Signal has again closed at -100 area for the 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  10th February, 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 Signal, Entries and Exits, Position Limits, Risk Factors, Risk Analysis,  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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