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Wednesday, July 11, 2012

Nifty and Defty charts: mid-week technical update

Nifty chart 

Nifty_Jul1112

The daily closing chart of the Nifty index is concurrently showing bullish and bearish patterns. Good news for the bulls is that the 20 day EMA has crossed above the 200 day EMA, and the 50 day EMA has formed a bullish rounding-bottom pattern and is about to cross above the 200 day EMA.

The 50 day EMA had crossed above the 200 day EMA in Feb ‘12 and stayed above the long-term moving average for two months. But the bulls could not regain control of the Nifty chart. Will the current attempt be successful? Not if the bearish ‘rising wedge’ pattern plays out as it is supposed to. A break down below the wedge can drop Nifty below its Jun ‘12 low.

Technical indicators are bullish, but showing signs of weakness. MACD is positive and just above its signal line, but the upward momentum has stalled and the histogram is falling. ROC is also positive but is touching its 10 day MA and touched a lower top as the index rose higher. Slow stochastic is inside its overbought zone, but sliding downwards. RSI formed a small head-and-shoulders reversal pattern in its overbought zone, which is a bearish sign.

FII buying has been a feature of the current rally. DII selling has prevented a runaway rally. However, many FIIs are becoming increasingly vocal about the propensity of India’s politicians to be self-serving, corrupt and prone to shooting themselves in the foot. Time may be running out for the UPA government to promote market-friendly policies.

Defty chart 

S&P CNX Defty_Jul1112

A week back, the following comments were posted about the Defty chart pattern: “ROC has moved up sharply above its 10 day MA. But such a sharp move usually heralds a correction.” The correction started before the Defty could move up to test resistance from its falling 200 day EMA.

Technical indicators are bullish, and have corrected overbought conditions. MACD is positive and above its signal line, but is moving sideways. ROC is also positive and above its 10 day MA, but is not moving up. RSI and slow stochastic are just below their overbought zones.

The bear market in the Defty chart will remain in force as long as the index trades below its falling 200 day EMA. Q1 results are unlikely to be good. Inflation and interest rate remains high. GDP growth is slowing down. These are not bullish signs.

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