Monday, April 11, 2011

Update for 11th April 2011

The Mild Correction to Continue ?  

  • Though, some of the previous posts were very short, almost every one of them dealt with the resistance offered by the falling trend line obtained by the  joining of  the previous two highs.
  • The earlier posts indicated that the resistance for Nifty futures is between 5950 and 6000. 
  • No wonder, Nifty contracts slowed down at the resistance and a mild correction has started in the previous two trading days.
  • European Central Bank's interest rate action, some hawkish comments on the interest rate front made by a US Fed official, the rising crude oil prices etc may hamper the present rally, at least in the short term. 
  • Now the pertinent questions before the traders are :  whether the mild correction will continue or not in the current week, and if yes, which are the  reasonable support levels !  Let's check the various charts to find  a possible answer !
  Nifty Futures - Intra-day Chart

  • The intra-day chart of Nifty futures show the way of the mild correction which on at present. Once Nifty futures broke previous two day low of 5880 levels, it remained below the level for the entire day on last Friday.
   Nifty Futures  - Daily Chart 

  • The daily chart also shows the start of the mild correction from the resistance or supply  line. Please note that the highest level achieved by the Nifty contract in normal trading was 5971 and not 6000 actually. ( There was a freak trade at 6000 but if you remove the freak trade form the chart, the reversal has started  exactly from the resistance line.
    Nifty Futures  - DMAs Chart 

  •  The 100 and 200 DMAs ( daily moving averages ) of Nifty futures are presently hovering at the 5725 - 5730 levels. And the 50 DMA is at the 5540 levels.
  • Therefore, the next levels of supports for the Nifty contracts are at these two areas ie at 5725 and 5550. 
 S&P CNX Nifty index - Weekly Chart

  • The weekly chart of Nifty index shows a doji star candle representing the previous week. Such a candle normally indicates indecision by the market. it can also indicate even a reversal.
  • Please note that this blog had earlier indicated that the Nifty index may spend some time in the shaded area on the right side of the chart as part of a consolidation before finding the next direction.
  • Therefore, continuation of the mild correction to the 5725 level is becoming the preferred out come at present.  This outcome also keeps the Nifty contracts in the upper half of the lower trend channel.
  • Another very important point to be considered at the present juncture  is the positive turnaround seen in the weekly charts. Barring unexpected circumstances, the positive momentum seen in the weekly charts may keep the correction in the daily charts to a mild one for the time being.
  • However, nothing, including the continuation of the correction and even a break of the lower boundary of the trading channel can be ruled out.
 Nifty Options Scene   

The April series Nifty Options Put Call ratio ( PCR April series ) decreased further to 1.20 times on Friday. ( In the Indian context, a  lower PCR is generally associated with market falls and this is just the opposite of what many option textbooks may normally suggest. ) The India VIX index rose to 20.54 following the fall in the market. Scattered call writing was seen at the strikes from 5800 to 6300 on Friday. Some Put covering was seen at the 5900 and 6000 strikes. Some Put writing was also seen at the 5700 and 5600 strikes. The 6000 and 5900 strikes were having the highest level of April Nifty Call OI as on Friday.  The corresponding strikes for Put OI were 5700, 5800 and 5600. Nifty options are active in a wide area which starts from the 5300 put to the 6300 call at present.  The option open interest data seems to suggest the existence of wide disparities in the expectation of the market participants about the immediate market direction and range. However, it seems that the data has started to point towards  the continuation of the mild correction at present.

 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 22.18, 3.71 and  1.07 respectively as on  8th April, 2011.  ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ).

 Latest Ultimate Momentum Signal 

Though both the indices closed with positive Momentum Signal values, Nifty futures ended with a neutral Momentum Signal value as on last 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 11h April, 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.

The probability of  Nifty futures ending with a -50 Momentum Signal value and a sell signal as on Monday has risen. Traders may note that the underlying positive momentum in the weekly charts may prevent the market from falling much and this may  turn the present signal in to a whipsaw. Therefore, some part booking of profits if any at the indicated first support is in order.

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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