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Wednesday, June 29, 2011

NSE Nifty 50 – a quick mid-week update

Some readers have written to me over the past couple of days, asking whether the worst is over for the Nifty and is it a time to buy. It is better to have a long-term view, and not be too bothered every time the index rises or drops by a couple of percentage points.

The ‘buy low – sell high’ theory is not just that. It works practically as well. How does one know when the index is low enough to buy and high enough to sell? Just look at historical P/E values of the Nifty, and check the range within which it trades most often. You will get the answer.

However, since the question has been raised by a few, there may be others who are thinking along the same lines. So, here is a quick update of the 1 year Nifty bar chart pattern:

Nifty_Jun2911 

Note the following points, and their implications:

1. Volumes have been strong during the past 5 days rally – bullish

2. The Nifty has crossed above the 200 day EMA after 2 months – bullish

3. The index touched a marginally higher top for this month – bullish

4. The ROC and the RSI reached lower tops while the Nifty reached a slightly higher top – bearish (negative divergences)

5. Last, but definitely not the least: the blue downtrend line has not been crossed yet – bearish

As long as the downtrend line is not breached, the 8 months long corrective phase remains in place. This up move gives an excellent opportunity to book partial profits.

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