Monday, May 16, 2011

Update for 16th May 2011

 Indian Stock Market at Cross roads Again !

  • Though it was indicated that Nifty futures may try to move out of the narrow trading range in the fag end of last week, it seems that no such successful breakout has happened. Nifty futures did indeed tried to move out in both the directions in the last two days of the previous week. However, by the end of the week, it seemed that both the movements have failed. 
  • Now let us check various possible scenarios and it's reasons for the kind of directionless trading being seen the Indian markets.
  • High inflation, rising costs of production, higher interest rates, slowing growth rates and comparatively high valuations have been preventing the markets from achieving new highs. The so called speculative mid caps and small caps have already suffered significant price erosion in the correction from last November onwards. But the blue chips have mostly retained premium valuations so far. Meanwhile, some growth has also helped in moderating the valuation levels. The trailing Price Earnings Ratio ( PE Ratio ) of Nifty index has been hovering between a low of 20 and a high of 25.8 or so for the past one and half years. Meanwhile it is observed that all corrections in the above referred period have bottomed out at near a trailing PER of around 20. ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ). Now the pertinent question is whether the present correction will also bottom out at near or around the 20 trailing PE mark corresponding to the Nifty levels of 5350 to 5400. However, this will remain as a million Rupee question till the market sorts it out ! 
  • Therefore, the Indian stock markets may not easily achieve any new highs at present and at best remain as a choppy traders market  for some time till the economic outlook becomes better. It may even continue to move down with occasional rallies.  
  • Technically speaking, the medium term trend is still downwards. Markets' inability to bounce back and recover even some of the losses seems to favor the continuation of the downtrend. The rising dollar index may lead to some more risk aversion lead selling by the FIIs in the Indian market. Any raise in the diesel prices may also help the down trend.  
  Nifty Futures - Intra-day Chart

      Nifty Futures  - Daily Chart 

  • Though Nifty futures rallied on last Friday, it remains to be seen whether any follow up buying will be forthcoming on Monday. Any rally till the 5650 levels in the immediate time frame can be part of a continuation pattern of the medium term downtrend. 
S&P Nifty Index - Weekly Chart

  • Formation of a doji like candle with a longer tail on the downside in the weekly chart above  indicates some support or a pause at present. However, a strong rally and some steady closes above the down trending supply line above ( the line joining the previous highs ) is required for a confirmation of the bullish outlook in the medium term. The chances of a test of the lower support line of the old trading channel at around the 5350 to 5400 levels still remains high.  
  Nifty Options Scene   

The May series Nifty Options Put Call ratio ( PCR May series ) decreased slightly to a below normal and bearish looking 0.84 times on Friday. Some writing of Put options was seen on last Friday. The below normal PCR may indicate the negative bias of the market. 
 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 20.40, 3.45 and  1.23 respectively as on  12th May 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 has gone to the neutral momentum territory  with a value of  -0- 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 13th May, 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 !!!

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