The Ultimate Momentum Signal

Bracing for the Effects of the Rate Hike ...!

Last Friday the RBI hiked the repo and reverse repo rate by 0.25 % each. Since the hike was expected to some extent and the fact that the hike was announced after the banks fixing new base rates, the hike's immediate effects on the market remains a bit dicey. Whichever be the verdict of the market, the Nifty future may open lower on Monday.

Last Friday Nifty futures opened at 5254, near the Thursday's close, and immediately tried to rally. But it could not rise more than 10 points above the Thursday's high of 5275. This blog has repeatedly pointed out that a 10 to 15 point breach of any important support or resistance may fail and those failures are opportunities for day traders to enter in to breakout failure trades. The Nifty futures failed in it's intra-day rally and finally closed at 5243 near the day's low.

Nifty Futures - Daily Chart

The Nifty future is hovering above it's 20 DMA at present. A decisive break of the 20 DMA may lead the futures reaching the next support levels at the 5100 to 5150 range where the 50 and 100 DMAs are situated at present.

S&P Nifty Index - Weekly Chart

The Nifty is trading in an upward moving channel as seen in the above chart for the past eight months. The last two weekly candles have been either a doji or an evening star doji indicating weakness. The 20 week MA and the 50 week MA are placed at 5155 and 5006 respectively at present.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as on the close of 2nd July 2010, is given below.

The Momentum Signal has returned a value of -100 indicating maximum downward momentum for the second day.

Projected Momentum Signal Close Values

The projected levels of closing values corresponding to the momentum shift / neutrality / continuation as on the close of trading on 5th July, 2010 are given in the table below. The table also include the projected closing values of BSE Sensex corresponding to the momentum shift / neutrality / continuation signals.

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

The closing values required for the continuation of the sell signal have moved upwards. All readers of this blog are once again requested to read and understand all the intricacies of trading the Momentum Signal System and the risk factors. Please do write in your comments and suggestion too.

Cheers and Prosperous Investing and Trading !!!

To access and/or download the free online Position Limit Calculator click here.

To checkout the five year history of The Momentum Signal Spreadsheet click here.

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.

What's The Nifty Funda Now ... ?

Here is a followup on the Nifty Fundamental Analysis for the first half of the calender year. Some of the readers might be aware of the article on Nifty long term historical fundamentals published on this blog. That analysis which covered the entire period of eleven years for which the fundamental data was available, can be read by clicking here.

To make the story short, that analysis lead to the making of a common sense guide to Nifty historical fundamentals and the same is reproduced below. But before going full force in to the analysis for the current period, a few words on the earlier analysis. Our common sense guide to the Nifty valuation is one of the most powerful tools long term investors can use in the Indian market. Think about an investor who invests for the long term in an index fund or an exchange traded fund ( ETF ) like Nifty Bees. Our typical investor invests only when Nifty is available below the long term valuation averages. Without any doubt, this investor will be a sure winner than the other "normal investors" who are attracted to the stock market only when the valuations are rich and speculation is wild. This is because our typical investor buys only when prices are low and she has margin of safety and time on her on side to be a winner. Unlike momentum traders who exits the market at the first sign of trouble, long term investors need to consider valuations with utmost care, because any investments made at higher valuations requires much more longer periods to become profitable. Further, such investments limit the power of long term compounding which is the real enabler of wealth creation.

S&P Nifty Valuation Guide

Now, let us check out the Nifty fundamentals for the last six months. As before, this analysis is done from the perspectives of historical Price Earnings Ratio, Price to Book Value Ratio and the Dividend Yield.

Nifty Historical Price Earning Ratio

The Nifty PE Ratio oscillated in a tight range between a high of 23.59 and a low of 20.06 during the review period. As you can see from the Valuation Guide, the valuations remained between the moderately high to the very high valuations in the six months period. The PE Ratio achieved it's high of 23.59 on 6th Jan, 2010 with a corresponding close of Nifty at 5282. It recorded the low of 20.06 on 25th May,2010 with a corresponding value of 4807 for the Nifty index.

Readers may also note that the PE Ratio is moving in a slightly downward trajectory due to increase in company profits, the denominator of the PE Ratio. ( For more details see the comparative chart of Nifty index and PE Ratio towards the end the article ).

Nifty Historical Price to Book Value Ratio

The Price to Book Value Ratio too moved in narrow range of 3.32 to 3.82 during first half. However, the trajectory of the PB Ratio seemed to be flat in the last six months.

Nifty Historical Dividend Yield

As Dividend Yield increases when stock prices fall, the yield moves opposite to the other two fundamental parameters of PE and PB ratios. The DY too moved in a narrow range of 0.91 to 1.05 % during the review period.

The important high and low points of Nifty and corresponding fundamental data recorded for the review period are highlighted in the following table.

Nifty Fundamental Highlights - Jan. - June, 2010

The High, Low and Average of Nifty and it's various valuation ratios for first half of the year are shown in the following table.

The High, Low & Average of Nifty Fundamentals - Jan. - June, 2010

The average values of Nifty, PE, PB and DY ratios during the period were 5119, 21.86, 3.62 and 0.96 respectively helping us to conclude that the Nifty index has mostly traded in the high valuation range.

Comparison Chart of Nifty Index & PE Ratio

As already stated elsewhere, the PE ratio has decreased nominally while Nifty has gained nominally during the first half of the calender year. Unlike the previous year, no great bargain prices were available in this year. Long term investors may wait before making substantial investments in the equity markets. They may enter at lower valuations as the post bear market economic recovery seems to be faltering the world over and it may lead to lower valuation entries when risk perceptions rise. However the Indian economy seems to be in the right trajectory, at least for now.

In case readers may require the Nifty fundamentals on a day to day basis, the data is available at the NSE website following the path Home > Indices > Statisics > P/E, P/B & Div. Yield values.

The Ultimate Momentum Signal

Pages

Sunday, July 4, 2010

Update on The Ultimate Momentum Signal - 5th July, 2010

Saturday, July 3, 2010

Nifty Fundamentals Revisited .. !