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Wednesday, July 25, 2012

Nifty and Defty charts: a mid-week technical update

Nifty chart

Nifty_Jul2512

The one year daily bar chart pattern of the Nifty 50 index is firmly in the grasp of bears. Note that the expected break down below the ‘rising wedge’ pattern occurred with a gap, which is very bearish. After consolidating for a few days above the 200 day EMA, Nifty has fallen below its long-term moving average - with another gap.

The 50 day EMA has merged with the 200 day EMA. The 20 day EMA has formed a bearish ‘inverted saucer’ pattern and is all set to fall below the 200 day EMA. Another bear market rally came to nought. The only silver lining for the bulls is that Nifty is trading above the blue up trend line joining the Dec ‘11 and Jun ‘12 lows. There is a possibility that the index may find support at the trend line.

Technical indicators are quite bearish. MACD is falling below its signal line, and about to enter negative territory. ROC is negative and below its 10 day MA. RSI and slow stochastic have entered their oversold zones, and may stay there for a few days like they did a couple of months ago.

A test of support from the blue up trend line seems a distinct possibility. A drop below the trend line will be very bearish.

Defty chart

S&P CNX Defty_Jul2512

Bears are in complete control over the Defty chart – despite buying by FIIs through most of the month. The index dropped with a gap below the entangled 20 day and 50 day EMAs, and is getting ready to test the support level of 2960. Will the support hold?

Technical indicators are not holding out much hope. MACD is below its signal line, and has slipped into negative territory. ROC is also negative, and below its 10 day MA. RSI and slow stochastic have entered their oversold zones. A breach of 2960 can drop the Defty to much lower levels.

Bulls are praying for rain and some reform announcements from the government – neither of which have been forthcoming. The fact that FMCG stocks have come out with good results and are trading near life-time highs is an indication that the bear market isn’t over yet. But it will be. Neither bull nor bear markets last forever.

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