Update for 17th May 2011

 Neither the Bulls nor Bears Seem to be Convincing !

• Nifty futures fell on Monday with a gap from the previous day's close. But the selling did not seem to be convincing as no panic or heavy volumes were seen.
• Momentum Signal indicated another sell. But this sell signal will be confirmed only if the market breaks the 5440 swing low. 
• Readers may please note that re-entries to an already established trend can be riskier than a fresh entry in to a developing trend as the latter has more surprise value and is capable of trapping and hurting more traders. 
• As neither the bull nor bear moves seem to convincing, trading may remain choppy.

  Nifty Futures - Intra-day Chart

    Nifty Futures  - Daily Chart 

Update for 16th May 2011

 Indian Stock Market at Cross roads Again !

• Though it was indicated that Nifty futures may try to move out of the narrow trading range in the fag end of last week, it seems that no such successful breakout has happened. Nifty futures did indeed tried to move out in both the directions in the last two days of the previous week. However, by the end of the week, it seemed that both the movements have failed. 
• Now let us check various possible scenarios and it's reasons for the kind of directionless trading being seen the Indian markets.
• High inflation, rising costs of production, higher interest rates, slowing growth rates and comparatively high valuations have been preventing the markets from achieving new highs. The so called speculative mid caps and small caps have already suffered significant price erosion in the correction from last November onwards. But the blue chips have mostly retained premium valuations so far. Meanwhile, some growth has also helped in moderating the valuation levels. The trailing Price Earnings Ratio ( PE Ratio ) of Nifty index has been hovering between a low of 20 and a high of 25.8 or so for the past one and half years. Meanwhile it is observed that all corrections in the above referred period have bottomed out at near a trailing PER of around 20. ( More information and a long term analysis on Nifty historical valuation are available from the "Nifty Fundas" page ). Now the pertinent question is whether the present correction will also bottom out at near or around the 20 trailing PE mark corresponding to the Nifty levels of 5350 to 5400. However, this will remain as a million Rupee question till the market sorts it out ! 
• Therefore, the Indian stock markets may not easily achieve any new highs at present and at best remain as a choppy traders market  for some time till the economic outlook becomes better. It may even continue to move down with occasional rallies.  
• Technically speaking, the medium term trend is still downwards. Markets' inability to bounce back and recover even some of the losses seems to favor the continuation of the downtrend. The rising dollar index may lead to some more risk aversion lead selling by the FIIs in the Indian market. Any raise in the diesel prices may also help the down trend.  

  Nifty Futures - Intra-day Chart