Nifty 50 chart pattern: a midweek update

The following comments were made in last Sunday’s post:

“The NSE Nifty 50 daily chart pattern is clearly showing positive divergences from all four technical indicators, which made higher bottoms while the index fell lower. That should lead to an upward bounce. Perhaps a weak bounce because the indicators are looking bearish.”

“TRIN has spiked up sharply to 1.4, which indicates oversold conditions and a very likely upward bounce. A TRIN level of 1.2 and higher indicates oversold conditions, which is usually followed by an up move.”

Instead of bouncing up, the Nifty continued its fall during the first two days of the week, closing at 4544 on Tue. Dec 20 ‘11 - below the downward channel. The TRIN rose to 1.5 – its highest level in the past year. Positive divergences disappeared from the MACD and slow stochastic indicators, but both the ROC and RSI continued to show positive divergences (marked with blue arrows in the Nifty 50 chart below).

The strong 150 points bounce in today’s trading has not changed the technical picture greatly. The index has moved back within its trading channel and prevented a steep fall for now, but its upward bounce stalled near the 4700 level that had earlier provided support during Aug to Oct ‘11.

Today’s up-day volumes were about the same as yesterday’s down-day volumes, and lower than Monday’s down-day volumes. That probably means more short covering than buying. All four technical indicators are bearish – though showing some signs of turning around. The MACD and ROC are negative. The RSI is below its 50% level. The slow stochastic is in its oversold zone.

As mentioned in last Sunday’s post, don’t try to chase this bounce because it may not go very far. Even if the Nifty crosses the 4700 barrier, resistance can be expected from falling 20 day and 50 day EMAs.