Wednesday, August 29, 2012

Nifty and Defty charts: a mid-week update

Nifty chart


After breaking out of the large symmetrical triangle pattern earlier in the month, the daily bar chart pattern of the Nifty is pulling back towards the triangle. It has dropped below its 20 day EMA and approaching a strong support zone between 5200 and 5250.

Why is it a strong support zone? Note that the top of the triangle and the 50 day EMA are currently at the 5250 level. If the Nifty fails to bounce up from 5250, it should get stronger support from 5200. 5200 is a long-term support/resistance level. Also, the 200 day EMA and the up trend line connecting the Jun and Jul ‘12 bottoms is also near 5200.

Those who failed to enter on the break out above the triangle may get an opportunity to enter on a bounce up from the 5200 – 5250 zone. However, technical indicators are looking quite bearish – so wait for the upward bounce before entering. A drop below the 5200 level may change bullish plans.

FIIs are still in buying mode. Unless they suddenly head for the exit, a deep correction in the Nifty chart can be ruled out.

Defty chart

S&P CNX Defty_Aug2912

It isn’t a great surprise that the daily bar chart pattern of the Defty is looking a lot more bearish than the Nifty – thanks to the continued weakness of the Rupee against the US Dollar. The index failed to cross above its falling 200 day EMA and has dropped down to seek support from its 50 day EMA.

Bulls can take heart from the fact that the up trend line joining the bottoms touched in Jun and Jul ‘12 is still intact. Technical indicators are bearish, but not too far from becoming oversold. An upward bounce from the 50 day EMA or the up trend line is a possibility, and can be used as a buying opportunity.

Not much has changed on the economic front. No bills are getting passed in the monsoon session of parliament because the BJP has got on a high horse of anti-corruption from which it is unable to dismount. BJP-ruled states are hardly free of scams and corruption. Good monsoon rains in August have made up most of the earlier shortfall. Except for the Saurashtra region in Gujarat, the rest of the country is no longer facing a drought. Any worries about two-wheeler and FMCG companies facing growth problems can be set aside.

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