The Million Dollar Question .. ?
Is the current uptrend a real rally or just short covering ? Last week, on each trading day, the Nifty futures traded at a range which was completely different from the previous day's range. In markets like these any kind of prediction or any trading system becomes a bit suspect. As pointed out in one of the previous posts, decreasing the size of the trades seems to be an ideal solution to decrease the risk of trading. The higher volatility will either provide the higher profit or loss on a small sized position.
Nifty Futures - Daily Chart
Ordinarily, a market which is rallying, trades in smaller ranges. An exception to this rule is the start of a fast and furious short covering rally. The covering rally has happened on the last three trading days and now the Nifty futures may need to correct somewhat before trying to test the resistances just above the present trading range. A test of the resistances after a small correction for a day or two is the best case scenario at present. ( Please see the various resistances in the chart above. ) However, a further deterioration of the ongoing European debt crisis may again land the futures in to a correction.
World Markets
The European markets were trading positively when the Indian markets closed on Friday. However, they lost all their gains and closed with small losses on Friday. The US markets traded lower to neutral and finished lower with losses of a percent after a volatile session. Meanwhile, the credit rating of Spain was lowered by a notch on Friday. There were even speculation of a rating cut of France in the future.
The Updated Momentum Signal Spreadsheet
The updated spreadsheet showing the Momentum Signal as on the close of 28th May 2010, is given below.
The Momentum Signal has indicated a buy with +50 value as on the close of trading on Friday.
Projected Momentum Signal Close Values
Please click on the table to enlarge. For more info on the above table, please click here.
Even though the Momentum Signal System has indicated a buy, traders may remain cautious and reduce the position limit/size of the trades for the reasons explained in the first paragraph. Experience has shown that the system is more suitable to markets with low volatility trading. Please also read the risk factors page of this blog.
Cheers and Prosperous Investing and Trading !!!
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To checkout the five year history of The Momentum Signal Spreadsheet click here.
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