Thursday, March 3, 2011

Update for 3rd March 2011

  Markets Rally Hard and What Now ?
  • Markets rallied hard on the second day of the budget. It seems that the reason for the rally was not the actual budget proposals but those many things which were not in the budget. The rallies in the Asian and western markets following the then correction of oil prices after the spike also helped.
  • On Tuesday, Nifty futures opened higher above the reference level of 5350 at 5375 and started to rally right from the opening. In this process of higher open and a rally from there, a subtle gap ( the gap between Monday's last traded price and Tuesday's trading range ) has been formed in the Nifty futures contracts. These subtle gaps may sometimes indicate further strength or weakness, as the case may be, especially when formed near lows or highs.
  • As the general mood of the public including this author was negative on Tuesday, the rally was expected to fizzle out either at 5400 or at the higher reference level of 5450. As this author has written on some earlier occasions, too much of consensus is a dangerous thing in the market, the market turned dangerous to the bears once it broke out above the 5450 level by around 12 noon of Tuseday.
  • Thereafter, Nifty futures rallied almost nonstop to close just above the higher reference level of 5550. This close, incidentally, is inside the earlier resistance band between 5550 and 5600 levels.   
    Nifty Futures - Intra-day Chart

     Nifty Futures  - Daily Chart 

  • While the Indian stock markets were closing on Tuesday just before the holiday, European markets were trading very much in the positive territory, on the back of a then fall in crude oil prices after the initial spike. However, the European markets have fallen subsequently on both the trading days on the back of rising crude prices and fresh fears of a spread of the Arab unrest to a country like Saudi Arabia. The Saudi Arabian stocks have been on a losing spree for some time.  The US markets were trading flat at the time of writing this post.
  • The Momentum Signal has given a buy signal on the back of the strong rally on Tuesday. However, for the reasons already explained above, Nifty futures may open lower on Thursday, barring any unexpected  circumstances. However, it seems that Nifty futures remain in the bullish territory so long as it remains above the 5440 - 5450 levels. 
  • As already stated the 5550 to 5600 area may act as a resistance level for the time being. The 200 day moving average ( DMA ) of Nifty contracts  at 5655 may also act as the next resistance. 
  • However, it is observed that the major new call writing for the March expiry is happening at the 5700 and 5800 strikes. Therefore, these strikes may also act as resistance in the unlikely scenario of the rally extending above the 200 DMA. 
  • However, because of the higher uncertainties on so many fronts, market may remain choppy and wild with sudden reversals leading to the failure of most analysis as is common to ranged markets.   
  • Readers are once again requested to take note that the Momentum Signal trading system is susceptible to whipsaw trades in sideways or ranged markets. Therefore, in case of a ranged or sideways market materialising in the immediate future, the system may indicate some whipsaw trades.

 Nifty Options Scene   

The March series Nifty Options Put Call ratio ( PCR )  increased to end at 1.58 times on  Monday. The India VIX index  closed lower at 22.22, losing another 8.93 %. The increase in the PCR and the fall in the India VIX seem to favour a bullish scenario. At least in the Indian context, market falls are more associated with lower PCR ratios. The build up of Call option open interest at the 5700 and 5800 strikes may also indicate some bullishness leading to a test or break of the previous swing high of 5600. Significant Put writing was seen in the three strikes at 5300, 5400 and 5500 on Tuesday. The open interest positions of Nifty seems to indicate that Nifty futures may trade in wide range of 5400 to 5700 for the time being.
 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 21.14, 3.50 and  1.13 respectively as on  1st March, 2011.  ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ). 

 Latest Ultimate Momentum Signal
Nifty future, Nifty and Sensex have closed with the Momentum Signal values of +100 on Tuesday.
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  3rd 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.
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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