Nifty chart: a mid-week technical update

Nifty’s daily bar chart pattern seems poised at an interesting cross road, though bears (i.e. FIIs) seem to have the upper hand. Here are some technical indications why bears may retain their dominance in the near term:

1. The down trend from the May ‘13 top has breached the blue uptrend line connecting the Jun ‘12 and Apr ‘13 bottoms. The breach is not quite convincing as yet – since Nifty has not dropped more than 3% below the trend line. But it is a breach nevertheless – which is bearish.

2. The 20 day EMA is about to drop below the 200 day EMA, though it hasn’t done so yet. If the falling 50 day EMA drops below the 200 day EMA also, the ‘death cross’ may end the bull market.

3. Daily technical indicators are bearish, and looking oversold. However, markets can remain oversold for long periods – so there may not be any immediate prospect of a turnaround.

Bulls are not completely out of the game. Here is why:

1. Nifty is just above the gap area – formed in Sep ‘12 between 5447 and 5527. The ‘flash crash’ on Oct 5 ‘12 was due to an ‘error trade’ that did not show up in either Nifty Futures or Sensex charts, and will be ignored for technical analysis purposes.

That means, the ‘gap’ has not yet been filled completely. The ‘gap’ provided support to Nifty back in Nov ‘12, and again in Apr ‘13 (when the ‘gap’ was partially filled); it may do so again.

2. Even if the ‘gap’ gets completely filled, the index is likely to resume its up move soon thereafter. The longer-term uptrend line connecting the Dec ‘11 and Jun ‘12 lows (not shown in chart above) is currently at about 5400 – just below the ‘gap’ zone.

3. During the last 5 trading sessions, the up-day volumes on Fri. Jun 21 and Tue. Jun 24 have been higher than on the three down-days. The selling pressure may be easing.

The scales will remain tilted towards the bearish side, as long as the FIIs keep selling. But DIIs have turned buyers, and that is preventing a crash in the Nifty chart – even though there seems to be no respite for mid-cap and small-cap shares.