Monday, February 14, 2011

Update for 14th February 2011

A Dead Cat Bounce or a Reversal ?

  • Last Friday, Nifty futures opened slightly higher at 5241 and immediately sold off to the previous day's close of 5225.
  • The Nifty contracts spent some time between 5225 and 5240 before breaking the reference level of 5225.
  • Nifty futures sold off to record a new swing low of 5175 in the morning session. However, it seemed that the volumes near the new low were drying up after some time.
  • Therefore, the Nifty contracts tried to recover. The recovery almost continued till the end of the day so that the Nifty contracts closed above the previous day's trading range at 5313.  
    Nifty Futures - Intra-day Chart  

    Nifty Futures  - Daily Chart 

  • Friday's recovery has lead to the Nifty futures contracts recovering almost the losses of the previous two trading days.
  • It's usual for markets in down trends to recover significantly for a day or two. Or in other words, days of large losses are usually accompanied by some days of large gains in between.
  • Therefore, it is better to consider the Friday's gains as a dead cat bounce at present than as a start of a 'V' shaped recovery. 
  • Nifty is still in the path of lower highs and lower lows indicating medium term correction. Hence, formation of higher lows and higher highs are required before concluding about the resumption of an uptrend.
  • The immediate  higher resistances for Nifty futures are at 5350, 5450 and 5550 at present.
  • The level of 5400 may also act a minor resistance for Monday, being the interception point of the present bounce and  the falling trend line obtained by joining the minor highs at 5795 and 5566. ( This trend line is not shown in the chart. )  
    S&P CNX Nifty Index  - Weekly Chart 

  • Friday's recovery has started from an area very near to the lower boundary of the old trading channel. 
  • Readers may note that the upper boundary of the top trading channel was tested twice by the Nifty contracts before the present reversal.
  • Hence, another retest of the lower boundary can be expected normally before the market's decision on whether to reverse or continue the down trend.

Nifty Options Scene  

The February series Nifty Options Put Call ratio ( PCR )  improved slightly to 0.82 on  Friday.  The VIX index closed lower at 23.47, losing 5.44 %. Some Put writing  ( increase in open interest )  was seen at the  strikes at 5000 to 5300. Significant Call writing was also seen  at the strike at 5200. The highest  open interest ( OI ) of February series Nifty Call options has remained at the 5400 strike. The highest  outstanding of February series Put options OI are at 5200 and 5100 strikes.   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 Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 20.34, 3.35 and  1.17 respectively as on  11th 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  14th 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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