World Market Indices

 One Road, but Different Destinations...!

 The Story

Once up on a time, when the train services were introduced for the first time in a state, there was only a single line in the north south direction. Our hero, a simpleton, traveled on the train for the first time from the south to the north. The train had to pass through a big station in the center of the state. The north bound train stopped at that station for refreshments and the crossing of the south bound train.

Our hero explored the station for sometime and entered a train for the onward journey. He tried to enter in to conversation with a  nearby passenger by asking, ' Where are you going ?'

The passenger answered : 'I am going to the south. By the way, where are you headed ?'

Our hero : ' My God...! This railway is a miracle....! I am going to the north and this train takes us both to north and south simultaneously....!'

( Our hero didn't know that he re-entered the wrong train at the crossing station. )

This story is still relevant in investment and trading. The following is a comparison chart of BSE Sensex, FTSE and Nikkei covering a five month period. The FTSE and Nikkei are trading at new 2010 highs. Sensex has not crossed it's Jan. 2010 high.  The Jan. 2010 highs are marked by the horizontal lines in the charts.  Major world indices, Dow, S&P 500, Nasdaq Comp, DAX, CAC etc are all trading above their Jan. 2010 highs at present. However, the Shanghai, Hang Seng and Taiwan indices are trading below their Jan. 2010 highs. The lack of performance of the Chinese market may be explained by the extreme valuation level of a whooping 47 times trailing PE it achieved in the late 2007 period. Indian markets have seen this kind of extreme valuation only in the 1992 Harshad Mehta induced boom. Our markets could recover from the excesses of the then bullish frenzy only after the passage of a long time. The Japanese markets are also suffering from the effects the extreme boom it had in the 1989 - 1990 period and are yet to recover.

BSE Sensex, FTSE & Nikkei - Daily Chart

 You can click on the table to enlarge. Top - Sensex, Middle - FTSE & Bottom - Nikkei

Our market seems to be just hesitating to cross the Jan. 2010 high. However, the purpose of this post is to invite the attention of the reader to the similarity of the daily charts from the three totally different economies. In the short term time frame of a trader, all these markets are trading in similar direction. Even if the Indian economy is having the second highest growth rate in the world, our market is behaving just like the other world markets which represents different economic conditions.

Businessline reports that " Indian equity indices are moving perfectly in step with most other global markets, a correlation analysis of weekly changes in MSCI India index with that of other MSCI indices from January 2008 to date shows." The report also says that the correlation between the Chinese and the Indian markets are weakening.  

Now, let us check out the direction of these three markets for a twelve year period.     

BSE Sensex, FTSE & Nikkei - Monthly Chart

 You can click on the table to enlarge. Top - Sensex, Middle - FTSE & Bottom - Nikkei

The long term direction of the three markets are shown in the charts itself by the regression channel lines. It is seen that major indices of the developed economies have not been delivering returns to the long term buy and hold investors for even a period of twelve years.

( Yeah...! "In the long term we are all dead.." Keynes. )

But for traders, it does not seem to matter much in which market they are trading because in  the short term all the markets are trading similarly.


Let us all say : " My God...! These markets are  miracles....! We  are all trying to go north but these markets take us all to the north and south simultaneously....!"

Amen...!

Cheers and Prosperous Investing and Trading!!! 

 
© 2010 momentumsignal.blogspot.com All rights reserved.


Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy.

Update on The Ultimate Momentum Signal - 1st April, 2010

  

Another Neutral Day...!

The  Nifty Futures opened near the Tuesday's close on Wednesday and traded towards the day's high in the initial stages. Thereafter, it traded downwards, broke the Tuesday's low of 5263 and reached a low of 5245. It again traded upwards and finally closed at 5264 without  any change in the closing values of the last two days. The future has not yet broken the support from the regression channel, which was shown in the earlier posts. The next direction of the trade remains uncertain. Now, let us checkout some lessons from the past three day's trading. 

Nifty Future - Daily Chart

The above chart shows the Nifty Futures trading at the new highs for almost one and a half days. Later on it failed to trade higher and therefore traded back to the areas which is below the January, 2010 high of 5303. The Jan. 2010 high of Nifty Future is marked by the horizontal line in the chart. In trader's parlance, this is called a bull trap because many new traders would have entered in to long positions, when the futures broke the old high. Now, they have been trapped and hence the name bull trap. The opposite of the above is called a bear trap. 

There are another type of traders who trade breakout failures like this. They will initiate short positions when futures falls below the previous high.  Note that on Wednesday the futures  encountered strong selling when it neared the old high. ( The final word is yet be spoken on whether the breakout  has failed completely yet..! ) 

How to Avoid Such Traps :

Some times, these kinds of bull and bear traps can be avoided  if comparisons are made between the future and the underlying. In the case of the Nifty futures, the comparison can be made with the mother of all Indian equity indices, the BSE Sensex.  Please see the chart of the BSE Sensex  given below. The Sensex chart shows no significant new high. ( This is the reason for including the Sensex also in the last table,  which shows the momentum signals corresponding to the various  projected closing values  of the  futures, Nifty Index and Sensex. The more a signal is confirmed by the future and the two indices together, the better. )

BSE Sensex - Daily Chart  

 

The Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as on the close of 31st March 2010, is given below.

The Nifty Future has closed in the neutral territory for the second day.

Projected Momentum Signal Close Values

The projected levels of closing values required for momentum shift / neutrality / continuation as on the close of trading on 1st April, 2010 are given in the table below. The table also include the projected closing values of BSE Sensex required for momentum shift / neutrality / continuation.

 You can click on the table to enlarge. For more info on the above table,  please click here.

 

The closing values required for the resumption of the uptrend and the trigger for a downtrend has moved upwards.

Cheers and Prosperous Investing and Trading!!!  

You can use the free online Position Limit Calculator from here.

You can also checkout the five year history of The Momentum Signal Spreadsheet from here.

© 2010 momentumsignal.blogspot.com All rights reserved.


Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information purposes only. We shall not be responsible and disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered by the user or any third party as a result of or which may be attributable, directly or indirectly, to the use of or reliance on any information or service provided. All files/information is provided 'as is' with no warranty or guarantee as to its reliability or accuracy.