Monday, March 28, 2011

Update for 28th March 2011

  Finally, the Breakout Happens !

  • The last abbreviated post was titled "   Indices Again  in the Positive Momentum Territory ! "  due to a new buy signal obtained from the Momentum Signal trading system on Thursday.
  • However, it was not known whether the buy signal may lead to a breakout or not  due to the primarily sideways kind of trading being seen in the past few weeks.
  • Friday's market action has now confirmed the breakout. The market has been showing some other subtle indications also pointing towards a breakout to the upper resistances.
  • The first of these indications was the reversal from the support at 5350. The second was a a subtle gap which occurred on Thursday. ( Subtle gap - Nifty futures never traded at the Wednesday's last traded price and the high on Thursday thereby leaving small gaps. )  The third and most important one was the close of Nifty futures above the the 50 day moving average after a long period of two and a half months. 
  • Therefore, all these technical signals have lead to new FII buying on Friday and this has helped the market to surpass the higher resistances between 5600 and 5650 levels very easily. 
   Nifty Futures - Intra-day Chart

Nifty Futures  - Daily Chart 

  • Nifty futures have left two small gaps in it's daily chart in the past two trading days. Though small, these gaps can be termed as ' run away gaps' which normally occurs in fast breakout situations.  Though most gaps are filled up over a time, sometimes, market may move far away from the gaps before coming back and trading through the gap areas. 
Nifty Futures Daily DMAs Chart
  • The chart above shows the various daily moving averages ( DMAs ) of Nifty futures. Nifty futures closed above the 50 DMA ( blue line ). 
  • Once the market closes above a significant DMA after a long time, it may test the higher DMAs. As such, the Nifty contracts are poised to test the 200 DMA at 5700 and later on, the 100 DMA at 5760.
  • However, it is natural to expect some overhead supply at around the 200 DMA before the market tries for a test of the higher 100 DMA.
  • In case of some small corrections in the present up move, Nifty futures can expect support at 5600, 5550 and 5500. The upper resistances are at 5700, 5760 and 5850.
 S&P CNX Nifty Index - Weekly Chart

  • The weekly chart of Nifty index also shows the breakout from the shaded area. Please note that this author had earlier opined that the market may spend some time trading in the shaded area before making any directional moves. 
  • Since the Nifty index has moved upwards from the lower half of the old trading channel, it may test the upper resistance of the said channel in the present upswing. If this scenario plays out, Nifty futures may test the 5800 - 5850 levels in the medium term.
  • If we can consider the 5550 level as the breakout point, the simple breakout targets are 5750 and 5850 levels. The first of this targets,  5750,  is obtained by adding 200 points being the depth of the immediately preceding flat trading channel to the breakout point. The second target is also obtained in a similar fashion, considering the old flat channel width as 300 points. This second target also coincides with the upper resistances at the 5850 levels being offered by the old trading channel with a width of 650 points. Incidentally, this target also coincides with the targets calculated on the basis of the gap between 5553 and 5570. ( 5550 +300 = 5850 ).  
 Nifty Options Scene   

The March series Nifty Options Put Call ratio ( PCR March series ) jumped to 1.75 times on Friday. ( In the Indian context lower PCR is generally associated with market falls and this is just the opposite of what many option textbooks suggest. ) The India VIX index gained by 3.18 % and closed at 20.47 on the back of the strong recovery lead volatility in the market. The improvement in the PCR and India VIX are pointing towards a positive scenario for the markets.  Huge covering of Call options were seen at the strikes of 5500 and 5600.  Huge Put writing was seen at 5600, 5700 and 5400 strikes. The 5700, 5800 and 5600 strikes are having the highest level of March Nifty Call OI as on Friday.   The corresponding strikes for Put OI are 5400, 5300 and 5500. The following option pain chart of March series Nifty options also shows the presence of predominant OI in Put options, which paints a positive outlook for the market in the expiry week. Barring unexpected developments, market is expected trade between 5500 and 5800 levels and the expiry is expected to be near the 5800 strike. ( However, readers may please understand that the technical situation of the market may change significantly from any informed guesses like these. )
Nifty Options Pain Chart - March Series  
 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 21.46, 3.59 and  1.10 respectively as on  25th March, 2011.  ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ). 

 Latest Ultimate Momentum Signal 

The Momentum Signals have closed with the maximum +100 values for the second day in succession as on Friday.

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  28th March, 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.

Click on the table above for an enlarged view.

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 !!!

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

© 2010-2011, All rights reserved.

Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information and educational purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy. We do not recommend, promote, endorse or offer any guarantee whatsoever in respect of any services or products offered in the advertisements displayed on the site by Google AdSense.

No comments: