Wednesday, February 2, 2011

Update for 2nd February 2011

    Nifty Futures Approaching the Interim Support of 5350 !

  • Following the intra-day bounce on Monday, Nifty futures opened slightly higher at 5542 on Tuesday.
  • However, sellers emerged right from the opening bell and the selling  lead to the Nifty futures falling to the previous day's lows in the morning session.
  • The losses were widespread and some of the better stocks too joined the bear bandwagon on Tuesday possibly indicating institutional selling.
  • Nifty Futures kept on trading around the 5450 reference area for some time in the middle session, but another bout of selling in the afternoon session lead to a new daily low and a close near the low.

Nifty Futures - Intra-day Chart  

  • Nifty and the major indices have lost continuously for the past five trading sessions by now.
  • Even if the market is poised to go down further, markets do not fall continuously for more than five to six days in normal cases.
  • As such, it seems that the market is poised for a bounce and a positive close, at least for a single trading day.

Tata Motors - Daily Chart

  • Tata Motors which is part of the interest sensitives had been performing well till recently.
  • However, the stock fell 6 % on Tuesday.
  • The stock has a lower support in the area between 990 and 1020 from where it can bounce back in the very short term to 1050 or even to 1100 levels. 
  • Traders may lookout for such a contra trend long trade in tandem with any bounce in the Nifty index. 
  • This long trade will be classified only as a high risk trade against the trend as the stock is still in a strong downtrend.
  • The lower support for the stock is at the 800 to 820 area.
   Nifty Futures  - Daily Chart   

  • Nifty futures added open interest on Tuesday indicating further short positions.
  • Nifty future is approaching the interim support area of 5340 -5350.
  • If the Nifty contracts fall further and  reaches the 5350 on Wednesday, traders may look out for a very short term high risk contra trend long trade, expecting the bounce as above.
  • The higher targets for this contra trend trade are 5450 and 5550.
  • The lower support for Nifty futures below the 5350 level is at the 5200 to 5225 area.
  • Traders may note that it is impossible to predict where the market may stop falling or make a reasonably accurate call on a low for a falling market. Therefore all these supports and resistances can only be treated as interim levels where market may pause or reverse.

  Nifty Options Scene  

Following the heavy sell off, the February series Nifty options Put Call ratio ( PCR )  decreased to a below normal 0.99 times on Tuesday. The India VIX  also closed higher at 23.73, up  1.37 %.  Significant additions to the Call option OI ( or call writing )  were seen at the strikes at 5400, 5500 and 5600. The highest  open interest ( OI ) of February series Nifty Call options has moved downwards to the 5500 strike as on Tuesday. However, the strikes at 5700 and 5800 were also having similar OI numbers in respect of Nifty Feb. calls.  The highest  February series Put options OI was at the 5400 strike as on  Tuesday.  Some additions to Put OI were also seen at the strikes between 5000 and 5400, whereas Put OI decreased at the strikes at 5600 and 5500. This option OI data seems to suggest that market participants are expecting the market to trade in a wide range between 5200 and 5800 in the immediate future. However, these indications may change in accordance with the changes in the market at any time before the expiry.  

Nifty Trailing Fundamentals     

The trailing PE multiple of Nifty index has fallen below the 21 mark after a long period. The present correction seems to be more of a PE contraction than a full fledged bear market at present. The Indian markets were  quoting at high and unsustainable PE multiples for a long time. But even after the present fall, the present valuation still can be justified only if the India Inc achieves a 20 % plus profit growth in the  coming year. The trailing Price Earnings Ratio  ( PE Ratio ), Price to Book Value ( PB Ratio ) and Dividend Yield ( DY Ratio ) of the Nifty Index  were at 20.70,  3.42 and  1.15  respectively as on  1st February 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. ( 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 fourth day in running indicating negative momentum.

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  2nd 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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