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Wednesday, September 26, 2012

Nifty and Defty charts: mid-week technical update

Nifty chart

Nifty_Sep2612

The 6 months daily bar chart pattern of Nifty shows the 80 points gap that formed on Sep 14 ‘12. If it remains unfilled, or gets partly filled, then it will be a ‘measuring gap’ with an upward target of 6200. A gap usually gets filled – but there is no rule that it must do so. Even if it does, the up move should resume.

In last Saturday’s post, the band between 5700 and 5950 was mentioned as a strong resistance zone. The Nifty has expectedly failed to cross the resistance zone in its first attempt. But volumes have picked up considerably on up-days, which is a bullish sign.

Technical indicators are overbought, and showing signs of correcting. The index may correct some more and try to fill the gap. If the gap gets filled, the rising 50 day EMA and the blue up trend line should provide support.

All three EMAs are rising and the index is trading above them. That is the sign of a bull market.

Defty chart

S&P CNX Defty_Sep2612

The Defty has broken out above its 200 day EMA with a gap. A break out with a gap is supposed to be a ‘stronger break out’. Note that the Defty has been forming a bullish pattern of higher tops and higher bottoms since the break out. The gap hasn’t even been tested yet.

The 20 day EMA has crossed above the 200 day EMA. The 50 day EMA is likely to do so soon, and technically confirm a return to a bull market. The Feb ‘12 top of 3967 is still almost 300 points away. The bulls have got a lot of work to do before they can regain control.

Technical indicators are overbought and showing signs of correction. On the downside, there is a strong support zone between the rising 20 day EMA and the blue up trend line (3250 to 3500). Unless a ‘black swan’ event happens, the up trend should continue.

If you are waiting for much lower levels to buy, your wait may never end. That doesn’t mean indiscriminate buying. Be selective, and maintain stop-losses.

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