Sunday, March 20, 2011

Update for 21st March 2011

 Battle for the 5400 Strike is On !

  • Here is a quote from the last post " Market has been spooking the bulls and bears alike for some times now. Now the only question remaining to be answered is whether the market is going to spook the straddle and strangle option writers in the current month or not ? Any breakout by the Nifty either way may lead to a scramble for covering by the option writers ! "
  • We wrote this comment after the indication of a new sell signal by the Momentum Signal system on Thursday, in a market which seemed to be predominantly flat till then.
  • The market heavyweight stock Reliance provided the ammunition for the sell off on Friday.
  • Friday's sell off has forced some of the Put options writers to cover their open Put option positions for the  5400, 5600 and 5500 strikes.
  • However, the battle for the 5400 strike is still on as the Nifty future is still inside the broad trading range of 5350 and 5550.
  Nifty Futures - Intra-day Chart

    Nifty Futures  - Daily Chart 

  • Now the million dollar question is whether the various supports from the horizontal trading channel and ascending trading range seen in the daily and the weekly charts will hold in the immediate to medium term time frame ! 
  • As the market has not been able to breakout  or even reach the top of the ascending triangle or flat trading range patterns of recently,  a  break of the lower boundary is a real threat at present.
  • A break of the lower supports may lead to a fall of 400 points ( approximate ) in Nifty. ( Please click here to read the post dated 17the March, 2011 which discussed this scenario in detail. ) 
  • The immediate lower supports of Nifty futures are at 5350 and 5200 levels. The immediate higher resistances are at 5450 and 5500.
 S&P Nifty Index - Weekly Chart

  •  The weekly chart above shows that the Nifty index is presently trading in the lower half area of the long running trading channel. The support from the lower boundary of this trading channel is at the 5175 - 5200 area which also coincides with the February 2010 lows.

 Nifty Options Scene   

The March series Nifty Options Put Call ratio ( PCR )  crashed to close at 1.07 times on  Friday.  Though the Put Call ratio decreased significantly in a single session, the ratio is still above par at present. ( 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 2.49 % following the fall and closed at 25.89. Huge Call writing was seen at the 5400, 5500 5300 and 5600 strikes.  Some serious covering of Put options was also was seen at the 5400 5600 and 5500 strikes. The 5500, 5600 and 5400 strikes have become the strikes with the highest level of March Nifty Call OI as on Friday.   The corresponding strikes for Put OI are 5400, 5300 and 5200.  The decrease in the PCR may have lead to the  fading of the hitherto mildly bullish nature of the markets. The implied volatility of Nifty options as indicated by the India VIX has been hovering in the 20 plus mark for some time  even as the  market is generally trading range bound. It seems that the improvement in India VIX and the neutral nature of the markets has lead to a situation where the option writers are taking it as a field day for writing straddles and strangles. However, in case of any breakout happening in the market, especially towards the lower side, that might force the option writers running for cover. This might aggravate the condition of the market as seen on the last derivative expiry day. 

 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 20.58, 3.40 and  1.16 respectively as on  18th 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 Signal ended up in the maximum negative momentum territory with a100 value for the second day in succession. 

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  21st 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: