Wednesday, January 2, 2013

Nifty and Defty charts: a mid-week technical update

Nifty chart


First, the good news. After struggling for a month to cross above the long-term resistance zone between 5750 and 5950, the Nifty finally managed to climb above 5950. The index touched an intra-day high of 6006 – a level last seen two years back – before closing just below the 6000 level.

Now, the bad news. The break out above 5950 was not accompanied by a significant increase in volumes. Contrast it with the spike in volumes in late Nov ‘12 when Nifty crossed the 5750 level. That means the break out may be a ‘false’ one.

Also, the new high in the Nifty was not matched by any of the four technical indicators – which touched lower highs. The combined negative divergences can lead to some correction or consolidation.

However, daily technical indicators are looking bullish and the next upside resistance is expected from the top edge of the upward-sloping channel at around 6200. It is possible that Nifty may move towards 6200 before correcting/consolidating.

All three EMAs are rising, and the index is trading above them. The bull market in Nifty is intact.

Defty chart

S&P CNX Defty_Jan0213

The CNX Defty chart (Nifty calculated in US Dollars) made a gap-up move in today’s trading. FIIs were probably celebrating the last-minute resolution of the ‘fiscal cliff’ issues by the House of Representatives.

The uptrend from May ‘12 lows – marked by the blue uptrend line - has not been tested since the ‘flash crash’ in Oct ‘12. All three EMAs are rising and the Defty is trading above them – which is the sign of a bull market.

Daily technical indicators are looking bullish. MACD has crossed above its signal line in positive territory. ROC has crossed above its 10 day MA into positive zone. RSI has crept above its 50% level. Slow stochastic has climbed sharply towards its overbought zone.

However, all four technical indicators are showing negative divergences by touching lower highs. A correction/consolidation may be around the corner.

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