Sunday, June 26, 2011

Update for 27th June 2011

  Back in the Old Trading Channel, Now What ?

After the stupendous rally of last Friday, Nifty index and the futures contracts are already back in the old trading channel. Now, the important question is whether the present bounce is the start of new leg of medium term trend or not. Unfortunately, the answer to the million dollar question will remain unanswered until the market itself reveals it's hands. As the important question remains unanswered, let's examine the key takeaways from the recent market action. Firstly, the old trading channel was broken. Secondly, as the weekly close was inside the channel, let's give the benefit of doubt to the fact that the channel remains intact for the time being. Third, the 5175 - 5200 area has become more important support or reference area because of the double bottom pattern. Fourth, the falling trend line or supply area still remains above the market. Fifth, the horizontal support at 5175 - 5200 area and the falling trend line is showing a descending triangle pattern in the charts. Fifth, until the market closes above the medium term falling trend line and remains inside the channel, the chances of the market breaking the lower end of the channel remains. ( Please see the daily and weekly charts below. ) 

On the fundamental front too, inflation remains high and the end of the rate hike cycle of RBI is not yet expected by the market participants. Other political and economic concerns also remain at heightened levels. So long as this myriad problems remain at the present levels, market may remain as a traders' market with two way movements without any firm direction. However, this analysis is subject to the fact that markets have a tendency to make the turn around some five - six months before the interest rate cycle peaks. 

S&P CNX Nifty Index - Weekly Chart

Major resistance from the falling trend line in the coming week is at 5730 levels. Similarly, the major support from the lower end of  the trading channel is available at 5300 - 5320 levels. Other support and resistances in the expiry week would be around / at the Nifty option strikes of 5400, 5500 and 5600. 

Subject to the above caveats, Momentum Signal system may end up with a buy signal as on the close of Monday's trading. 

Nifty Options Scene   

The June series Nifty Options Put Call ratio ( PCR June series ) improved tremendously  to 1.28 times on Friday on the back of the strong rally. The change in the Nifty option positions indicate support at 5400 and resistance at 5500 and 5600 for the time being. ( Please see the Option Pain chart below. ) 

Option Pain Chart - Nifty June Series Options

 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 20.17, 3.39 and  1.30 respectively as on 24th June 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 moved in to neutral territory with  value of -0- as on Friday. However, the Momentum Signal in respect of BSE Sensex has already moved in to positive territory with a value of +50.

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  27th June, 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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