Friday, February 18, 2011

Update for 18th February 2011

 A Day of Gains and Now What ?

  • On Thursday, Nifty futures opened exactly at the same level where it closed on the previous day.
  • The futures contract sold off from the open to test the low of the previous day on light volumes.
  • The light selling probe ended at 5460, which was just above the previous day's low and also the reference level of 5450.
  • The recovery from the low of 5460 was also on very light volumes. The market seemed to be completely dried up of volumes in the morning session.
  • The recovery still continued very tentatively  towards the two day highs. Once the Nifty contracts broke the two day high, volumes came back to the market.
  • The futures closed the the day's high of 5550 for the day.
  Nifty Futures - Intra-day Chart  

    Nifty Futures  - Daily Chart 

  • Nifty futures has rallied exactly as indicated in one of the two scenarios given in the previous post and reached the higher resistance level of 5550. The day's high also coincided with indicated reference level. 
  • Nifty futures have already recorded gains continuously for the past five trading days.
  • It seems that the bears have been trapped by the continuous gains in the futures.This is one of the best examples which shows the necessity of a stop loss, because no one knows how far the market will go once it starts to move in a direction.
  • The market is due for a small correction, as it does not usually make gains continuously for more than six or seven days. ( However, some low volatility slow rallies can be the sometimes exemptions  to this general rule. )
  • Markets are poised to encounter further resistance from the 200 DMA at 5640.
  • The kind of one way movements being seen at present  can also turn a small reversal in to severe one.
  • However, the increasing open interest of the Nifty put options might be indicating strong support for the markets.
 Nifty Options Scene  

Nifty Options Scene   
The February series Nifty Options Put Call ratio ( PCR )  improved further to 1.18 on  Thursday.  The India VIX index also closed lower at 22.57, losing  2.08 %. Heavy Put writing  ( increase in open interest )  was again seen at the  5500 strike. The 5600 strike also added some  significant Put options OI. The highest  outstandings of February series Put options OI has remained unchanged at the 5400 strike. However, the 5500 and 5300 strike also held very  high number  of Put OI, becoming  the second and third strikes with maximum Put OI.  The highest  open interest ( OI ) of February series Nifty Call options has  remained unchanged at the 5600 strike. This option OI data seems to suggest that the support level of the market is rising and the market participants are expecting the market to trade in a  range between 5400 and 5600  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 21.19, 3.51 and  1.12 respectively as on  17th 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 :

The Momentum Signal has closed at the +100  level for the third consecutive 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  18th 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 also 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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