The Ultimate Momentum Signal

Thursday, October 21, 2010

Update on The Ultimate Momentum Signal - 21st Oct. 2010

The Support at 6000 Broken or Not ???

After a day of almost random and wild movements in the Nifty futures, one wonders what really happened during the day and why ? Yours truly is at a loss to explain the dramatic kind of movements seen in the Nifty futures on Wednesday. If we are not sure about what exactly happened during the day, lets observe it somewhat objectively and see what comes out of it !

Nifty futures opened at 6018, slightly lower than the previous day's last traded price of 6025. It immediately recorded the day's then low of 6010, which was slightly higher than the Monday's low of 6008. From thereon, the recovery rally started and Nifty futures recorded a high of 6068 in the morning session itself. Most of the trading till the 2.00 PM mark was confined to a narrow range of 30 points between 6030 and 6060. The trading remained very choppy and directionless. Just after the 2.00 PM mark, a sudden rally in the markets saw the futures recording a new daily high of 6077. ( This high incidentally remains just below the 6083 resistance mark indicated in the previous post. ) This new high actually took out the stops placed above the morning's high. What happened afterward is even strange. Nifty futures took out the stops at the then day's low and the 6000 levels too in a swift movement in the last half an hour of trading. It recorded a new daily low of 5987 but recovered immediately to close at 6015. Now the pertinent question is whether the support at the 6000 level still holds. The answer seems to be an 'yes'.

Nifty Futures - Daily Chart

The above chart shows that after a correction lasting almost five trading days, which includes the day on which the high was recorded, a doji candle seen in the chart. The kind of trading was also random and directionless making the doji candle more meaningful. A doji candle ( a candle in which the open and close are very near ) indicates indecision by the markets. A doji candle after a big move may indicate a pause or even a change of direction. As such the market may move in either direction from hereon but the chances of a recovery seemed to be higher. However, traders may not rule out the fact that market may retrace the correction once again after a recovery lasting a few trading sessions.

The open interest in the three near month contracts of Nifty futures increased by 8.83 lakhs on Wednesday. Significant addition of open interest in the Nifty call options were also seen at the three strikes at 6000, 6100 and 6200 levels. However, open interest in the Nifty puts were seen decreasing except at the 5800 strike. All the above data actually adds up only to increase the confusion in the analysis to find the immediate market direction. As the US markets are seen rallying overnight, Nifty future may recover and try to test the 6083 resistance on Thursday.

All Time Highs

Many readers who might not have access to the historical charts might be interested in knowing the all time highs of the Indian stock market indices. The above table shows the all time highs of Nifty futures (then current month ), S&P Nifty and BSE Sensex and the dates on which the highs were recorded. The all time intraday high of Nifty future is 6336 and that of the Nifty index is 6357. The highest closing prices of futures and the index were at 6288 and 6289 respectively.

Nifty Fundas

Together with the strong rally and non stop gains in the broader markets seen till recently, the trailing valuations levels of the Nifty index were hovering above the 25 mark till just two days ago. The 25 PE mark can almost be termed as the starting point of the bubble territory.

The above table shows the latest data related to Nifty trailing valuation, sourced from the NSE, India website. The historical trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index were at 24.69, 3.76 and 1.05 as on 20th October 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio of 25 were limited to just two occasions in the years 2000 and 2007-08. And both such periods coincided with the highs just before the burst of the then bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog ).

This information is being provided for the benefit of long term investors only. For traders, they can enjoy the rally till it lasts. It may be noted that markets can remain overvalued and overbought for significant periods which can be much beyond our expectations.

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on 20th October, 2010 is given below :

The Momentum Signal value for Wednesday's close remained at the -100 levels.

Projected Momentum Signal Close Values

The projected levels 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 21th October, 2010, are given in the following table.

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

All readers are requested to read the Risk Factors, Risk Analysis, Position Limits and FAQs pages of this blog to have a reasonable understanding of the system. Please do post your suggestions and comments on how this blog can be made more useful.

Cheers and Prosperous Investing and Trading !!!

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Disclaimer: No research, information or content contained herein or in the accompanied spreadsheet shall be construed as advice and is offered for information and educational 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.

Wednesday, October 20, 2010

Update on The Ultimate Momentum Signal - 20th Oct. 2010

The Support at 6083 - 6093 Broken !!!

Nifty futures opened slightly higher at 6139 On Tuesday on the back of positive momentum seen in the international markets. Nifty futures sold off immediately to the support of 6083 as indicated in the previous post. The futures spent considerable time in the morning session by trading just above this support of 6083 as no follow up selling was seen at that period. As such it started to recover slowly and even broke above the 6134 resistance level easily to record the daily high of 6166 in a steep rally mode which happened in the afternoon session. Please note that this high coincides with the resistance area of 6150 to 6175 indicated in the previous post. Thereafter, the futures started to trade lower slowly as is expected after any such steep parabolic up move. However, once the Nifty futures broke the 6134 levels to the downside again, selling accelerated and the futures started to fall almost vertically. Barring some mild recoveries of 10-15 points, Nifty futures sold off relentlessly in the last hour of trading to record a low of 6024. The last trade was at 6025.55.

Nifty Futures - Daily Chart

Nifty futures have broken the support of 6083 - 6093 area. This area may now become a resistance. When one support level is broken, market may try to test the other lower supports. The immediate lower supports of Nifty future are at the 6000 and 5940 levels. The above chart also shows that in spite of the market's inbuilt tendency to rally as indicated by the huge premium on Nifty futures, the market has been going through some turbulence as indicated by the bigger candles off late. It seemed that the only markets which had seen some turbulence recently were in India and Taiwan. Now, it seems that international markets may join the Indian markets on the back of an interest rate increase in China and the overnight sell off seen in the US markets on the back of some disappointing corporate results. Traders may watch out for the lower support of 5940 in case the 6000 support breaks.

Nifty Futures - Daily Chart with Moving Averages

The above daily chart of the Nifty futures shows the various moving averages. For the second time in the last thirty plus trading days, Nifty futures have closed below the 20 DMA placed at 6106. Generally speaking, 15 or 20 day simple moving averages may act as support and resistances to tending markets. As the Nifty future has broken the 20 DMA and if the correction prolongs, then it may even test the lower 50 DMA which at present is placed at around the 5800 levels. The 100 and 200 DMAs of the current month futures are at 5543 and 5325 respectively as on date.

All Time Highs

Nifty Fundas

Together with the strong rally and non stop gains in the broader markets seen till recently, the trailing valuations levels of the Nifty index were hovering above the 25 mark which can almost be termed as the starting point of the bubble territory.

After the sell off of Tuesday and adjustments for the latest corporate results, Tuesday's trailing PE Ratio has closed below the 25 mark. The above table shows the latest data related to Nifty trailing valuation, sourced from the NSE, India website. The historical trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index were at 24.87, 3.79 and 1.04 as on 19th October 2010. Readers may please note that the periods in which the Nifty index traded above a historical PE Ratio of 25 were limited to just two occasions in the years 2000 and 2007-08. And both such periods coincided with the highs just before the burst of the then bull markets. ( More information and analysis on Nifty historical valuation is available from the "Nifty Fundas" page of this blog ).

Updated Momentum Signal Spreadsheet

The updated spreadsheet showing the Momentum Signal as at the close of the trading on 19th October, 2010 is given below :

The Momentum Signal value applicable to the last traded prices remained at -100 levels in respect of Nifty futures and the indices Nifty and Sensex.