Wednesday, April 13, 2011

Update for 13th April 2011

The Mild Correction Continues !   

  • As expected, the mild correction which started from the falling trend line continued on Monday. 
  • Monday's holiday mode trading has lead to the formation of a so called subtle gap. Whenever the Nifty contracts do not trade at the previous day's close and / or last traded price on the following day, for lack of any other accepted name, this blogger has been calling it as a subtle gap. According to the experience gained, such subtle gaps, especially when formed near the highs after a rally, can sometimes indicate further weakness in the market. 
  • However, as the market has already closed downwards for the last five trading trading days, some bounces can also be expected. This is all the more important due to the presence of some positive momentum in the weekly charts.
   Nifty Futures - Intra-day Chart

  • Nifty futures traded in a  tight trading range of 50 points between 5800 and 5850 on Monday. Even if the the Nifty contracts were to trade above the Monday's high, it may encounter resistance between 5880 to 6000.

    Nifty Futures  - Daily Chart 

  • As already indicated in the previous posts, Nifty futures may get the first support at the 5730 levels where the 100 and 200 DMAs are hovering at present. Therefore, part booking of profits on short positions, if any, or some hedging can be considered at those levels provided the market action warrants it. 

  Nifty Options Scene    

The April series Nifty Options Put Call ratio ( PCR April series ) decreased further to 1.16 times on Monday. ( 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 21.24 following the fall in the market. Some call writing was seen at the strike at 5800 on Monday. Some Put covering was seen at the 5900 and 5800 strikes. Some Put writing was also seen at the 5500 and 5700 strikes. The 6000, 5900 and 5800 strikes were having the highest level of April Nifty Call OI as on Monday.  The corresponding strikes for Put OI were 5700, 5500 and 5800. Nifty options are active in a wide area which starts from the 5500 put to the 6000 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 21.96, 3.67 and  1.08 respectively as on  11th April, 2011.  ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ).

 Latest Ultimate Momentum Signal 

Nifty Futures and the two indices ended up with Momentum Signal values of -50 indicating a fresh sell as on Monday.

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 13h 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.

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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