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Wednesday, February 9, 2011

Update for 9th February 2011



  Another Day of Losses, What Now ?

  • The last post's title itself said that some upsides may be expected for the simple reason that no follow up selling in the Nifty futures was seen on Monday  following the bearish engulfing candle of Friday.
  • However, in hindsight, it seems that the sellers were just waiting for some upticks to restart their liquidation and they restarted the selling in the absence of any uptick on Tuesday.
  • Therefore, not only that the expected positive move didn't take place, but instead, markets resumed the downtrend belying all expectations. The best lesson from this episode is that any kind of analysis can fail in the market and therefore, it is better to stop trying to call the lows. 
  • Some lower than expected results declared by some of the popular trading midcaps also didn't help at all for a recovery.
  • For the first time after the down trend started, some fundamental analysts have started to talk about the possible earnings growth downgrades at the index levels. It always happens this way. First, the market falls. The downgrades come later. Actual lower profit / growth reflects later on. Market goes further down. More earnings downgrades follow. Markets starts the recovery while the downgrades continue  unabated. Finally the upgrades start. By this time markets might have gone up considerably. More upgrades follow. Markets peak and analysts will continue with their upgrades. And the story comes to a full circle. It's just like the case of a dog chasing it's own tail !
  • Nifty futures opened flat at 5411 and tried to move upwards but the attempt failed at the 5420 levels which was the high point of Monday's initial narrow trading range. 
  • However, when the upward movement started to fail, another bout of selling started as is usual these days.  Nifty futures sold off to the widely known six month low and support of 5340 - 5350 levels and traded around the levels for some time.
  • All efforts at recoveries from the said support  were also sold in to, resulting in to a break of the support in the last hour of trading. Nifty futures closed at 5320 for the day after recording a low of 5304.
 Nifty Futures - Intra-day Chart  



How to Trade an Inside Day Candle
  • As this author feels that he is obliged to the readers to at least add a small note on how to  trade an inside day candle, after wrongly calling on the traders to lookout for some gains. Here it is !
            Inside Day Candle- Chart 1

  • The last candles complete range is covered by the immediately preceding candle. Therefore, the last candle is called an inside candle. Please also note that the range of the inside day candle is very small in comparison with the previous candles.
  • In order to trade the inside day candle, place a stop buy order above the high of the candle. 
  •                                                                                                                                                                                    Inside Day Candle- Chart 2
  • Similarly, place another stop sell order at the bottom of the candle.
  • When one of the orders gets executed, the other order becomes the real stop loss order.
  • Manage the trade by adjusting the stop loss or exit  near a known support or resistance.
  • Not every trade may lead to profits and on certain days both orders may get executed leading to losses.

    Nifty Futures  - Daily Chart 


  • Nifty futures, Nifty, and BSE Sensex have closed at new post August 2010 lows on Tuesday.
  • The next visible minor support for Nifty futures is at the July 2010 low of 5225.
  • Further down, Nifty futures and the Nifty index may have some support forthcoming from the upward moving lower boundary of old trading channel at around the 5100 to 5150 levels. ( Please click here to read the post dated 7th Feb. showing the weekly chart of Nifty Index. ) 
  • All resistances and higher reference points are market on the chart above. Please click on the chart to enlarge.
  Nifty Options Scene  

The February series Nifty Options Put Call ratio ( PCR )  fell further to 0.91 on Tuesday following the sell off.  Though the market sold off, the India VIX  remained unchanged and closed a little higher at 24.64, up just 0.20 %. Significant Put writing  ( increase in open interest )  was seen at the strike at 5100. Significant   Call writing was also seen  at strikes at 5400. The highest  open interest ( OI ) of February series Nifty Call options has come down to the 5400 strike. The highest  February series Put options OI was at the 5400 strike as on  Tuesday. However, the second highest OI of put options has moved to the strike at 5100.  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 20.35,  3.35 and  1.17 respectively as on  8th 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  9th 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 !!!

To access and/or download  the free online Position Limit Calculator click here.

To checkout the five year history of The Momentum Signal Spreadsheet click here
 
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