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

 

  

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 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 ).

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  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.

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  20th 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 !!!

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

© 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 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.

Update on The Ultimate Momentum Signal - 19th Oct. 2010

  The Support at 6093 Still Holding !!!

The Indian stock markets have started the call auction open method from Monday. Call auction open method is initially applicable to all stocks in the two major indices, NSE Nifty and BSE Sensex. This kind of open involves a seven to eight minutes period of order acceptance to arrive at a consensus or equilibrium price at which maximum trade quantity is possible. This equilibrium price is accepted as open price and the trades at the open price are confirmed by 9.15 AM. 

The normal market opens at 9.15 AM. However, today's experiment with the new system saw some awkward price movements and open prices in some stocks which in turn lead to unrealistic Nifty index values. Irrespective of the Nifty index open at 6113, Nifty futures opened lower at 6074 on Monday. It immediately started to sell off and the market recorded a low 6008 which was very near to the first support of 6000 mentioned in the earlier post.  The recovery in the Nifty futures started when the European indices opened lower and started to recover.  After spending a very long time ( on intraday basis ) below the  6050 levels, Nifty futures started to rally in the late afternoon and went inside the previous day's trading range and then above the support levels at 6083 and 6093. This lead to further short covering and Nifty futures closed almost at the highs of the day at 6133. The close also coincided with the previous support /resistance reference level of 6134. 

Nifty Futures - Daily Chart

The above chart shows that most of the trading in the last two weeks were done in the range between 6093 and 6230. It is also seen that in the last two occasions when the futures tried to go beyond the range, it has succeeded to some extent. But the gain or loss thereof were not held.  Or in other words we have two breakout failures in which the bulls and bears were trapped respectively. Accordingly, if Nifty futures is not being sold off further below the 6083 support on Tuesday for some reason or the other, it may be confirmed that the break of 6083 support has failed and it was a bear trap, at least for the time being. Now,  how could traders analyse the present situation ? First, we may draw a support at the Monday's low as a reference point. We may also draw a resistance line at the highest high at 6318. Since the broader trading range has been marked for now, lets' use the old refrence points at 6083, 6093, 6134, 6150, 6175, 6193, and 6230 to mark the middle part of the range. If the Nifty future is able to trade and hold above the 6175 mark, then it may try to test the higher resistances at 6230, 6250 or even further. If the future is unable to move beyond the 6150 to 6175 area, then it may retest the lower ends of the range.

 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, the trailing valuations levels of the Nifty index have climbed almost in to the bubbles territory.

 

The above table shows the latest data related  to Nifty trailing valuation, sourced from the NSE, India website.  The trailing PE multiple of Nifty index is still quoting above an expensive 25 mark. The historical  trailing price earning ( PE Ratio ), price to book value ( PB Ratio ) and dividend yield ( DY Ratio ) of the Nifty Index  were at 25.07, 3.82 and 1.03 as on 18th 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 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 ).

 

If you would observe the PE ratios of 15th and 18th October and compare them, it is seen that the ratio has  slightly decreased while the Nifty index has gone up by 0.22 %. Now, how could this happen ? The reason for this reduction is the profit growth achieved by those index companies which have released the quarterly results so far. This point is explained for the simple reason that PE ratios or any such valuation ratios are not some thing written on stone and all these tools are amenable in a dynamic setting.     

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  18th October, 2010 is given below :

 

 

The Momentum Signal is still giving a value of -100 for Monday's closings. This is why  it was particularly mentioned in the previous post that  "the Momentum Signal System, like any other trend following systems, is susceptible to whipsaws in ranged markets. As such a break of the support at the 6083 levels in the Nifty future is the most  essential for the actual confirmation of this sell signal." It is also to be noted that the dynamic stop of 2.1 % from the maximum favorable point  ( ie. Mondays low of 6008 ) would have hit during the end of the trading day at 6134 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  19th 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 !!!

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

 
© 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 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.