Nifty and Defty charts: a mid-week technical update

Nifty chart

Nifty touched a slightly higher intra-day high of 5195 on Mon. Jun 25 ‘12, but formed another ‘reversal day’ pattern (higher high, lower close). The index is consolidating sideways with a slightly upward bias, but has so far been unable to convincingly cross above its 200 day EMA and the support-resistance level of 5175.

The 20 day EMA has moved up to touch the 50 day EMA, but both EMAs are still below the 200 day EMA. The bulls still have a lot of work to do before the bears can be shaken off.

Technical indicators are bullish but showing signs of weakness. MACD has stopped rising and about to touch its signal line in positive territory. ROC crossed below its 10 day MA and dropped to the ‘0’ line, from where it is trying to bounce up. RSI and slow stochastic have dropped from their overbought zones, but are above their 50% levels.

RSI has formed a double-top reversal pattern. ROC is sliding while the Nifty is moving up. These are negative signals. 20 day EMA has formed a rounding-bottom pattern, which is a positive. Nifty appears to be treading water prior to F&O expiry day.

Our former FM is preparing for the Presidential race. PM has taken charge of the Finance Ministry. The market seems to be expecting some big-ticket reforms – which may not happen just yet.

Defty chart

Defty (Nifty measured in US Dollars) is consolidating sideways with a downward bias – thanks to the continued weakness of the Rupee against the Dollar. The index has slipped below its 20 day EMA and is trading below its 50 day and 200 day EMAs – sign of a bear market.

Technical indicators are looking bearish. MACD is about to touch its signal line in negative territory. ROC has dropped below its 10 day MA into the negative zone. RSI and slow stochastic have fallen below their 50% levels.

Another test of the support level of 2960 is likely. Bulls will hope that the support holds. A breach of 2960 will be very bearish, because FIIs – who started the Dec ‘11 rally by buying at 2960 - will probably start to sell.

The next trigger for the stock market may come from the Eurozone summit meeting, but it is better not to hope for a miraculous turnaround of their sliding economies. Q1 results to be declared next month are unlikely to bring much cheer. Monsoon arrived late and is playing truant. Not much positives to look forward to in the near future.

Continue to hold on to existing portfolios. Stay away from speculative and ‘theme’ stocks. Look to enter large-cap stocks that are facing temporary setbacks.