Wednesday, April 10, 2013

Nifty and Sensex charts: a mid-week technical update

Nifty chart

Nifty_Apr1013

The down trend on the Nifty chart is continuing. Yesterday (Apr 9 ‘13), the index dropped into, and closed inside, the ‘gap’ zone between 5450 and 5525 – formed back in Sep ‘12. (Though the ‘gap’ was filled by the ‘flash crash’ on Oct 5 ‘12, it was due to an ‘error trade’ and will be ignored.)

Today (Apr 10 ‘13), the index dropped 10 points lower intra-day; just when it looked like the ‘gap’ will get properly filled, the index did an about-turn to climb out and close above the ‘gap’. In the process, it formed a ‘reversal day’ pattern (lower low, higher close).

Is the down trend over? The daily technical indicators are not suggesting that. MACD is below its signal line at the edge of its oversold zone. ROC is above its 10 day MA and moving up, but remains inside negative territory. RSI is trying to emerge from its oversold zone. Slow stochastic is inside its oversold zone. A rally towards the 200 day EMA is a possibility.

A convincing move above the blue down trend line – currently at 5850 – may end the down trend.

Sensex chart

SENSEX_Apr1013

The daily bar chart pattern of Sensex is moving in tandem with Nifty. An identical drop and close inside the ‘gap’ zone between 18060 and 18290, followed by formation of a ‘reversal day’ pattern and a close above the ‘gap’ zone.

Daily technical indicators are bearish, but appears to be correcting oversold conditions. That can mean one of two things: either the start of a rally; or, a mere bounce followed by a deeper correction. FIIs have been net sellers of late, and if they continue selling, a deeper correction is more likely.

A convincing move above the blue down trend line – currently at 19400 – may change the sentiment from bearish to bullish.

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