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Wednesday, July 3, 2013

Nifty chart: a mid-week update

The 1 year daily bar chart pattern of Nifty is technically still in a bull market – despite strong selling by FIIs during June ‘13. The selling occurred across emerging markets and had more to do with strengthening of the US Dollar against most currencies.

The correction that started after Nifty touched a 2 year high in May ‘13, dropped below the 200 day EMA and briefly breached the blue up trend line connecting the Jun ‘12 and Apr ‘13 lows. However, the breach wasn’t a convincing one – i.e. the index didn’t drop below the trend line by more than the 3% ‘whipsaw’ level.

Note that the ‘gap’ zone created back in Sep ‘12 (marked by blue dotted lines) provided support to the index in Nov ‘12 and Apr ‘13 (when the ‘gap’ was partly filled) – and again during Jun ‘13. (The ‘error trade’ on Oct 5 ‘13 will be ignored because it didn’t occur in Nifty Futures or Sensex charts).

Nifty_Jul0313

The upward bounce from the Jun ‘13 low was backed by good volume support, that took the index above all its three EMAs. Two days of correction has brought the index down to its 200 day EMA once more. The battle between the bulls and bears has not yet determined a clear winner. However, in the past 10 trading sessions volumes on 5 up-days have exceeded volumes on 5 down-days. That is a bullish sign.

Daily technical indicators are turning bearish. MACD has moved above its signal line in negative territory, but its upward momentum is slowing down. ROC is falling towards its 10 day MA and has slipped into negative zone. RSI is about to drop below its 50% level. Slow stochastic is ready to drop down from its overbought zone.

If the support from the 200 day EMA is breached, expect support from the up trend line and the ‘gap’ zone. What if the ‘gap’ gets filled completely? The index will be expected to resume its up move thereafter.

In spite of all the doom and gloom stories – about the economy, the currency, the fiscal and current account deficits – Nifty has remained in a long-term up trend since touching its Dec ‘11 low, thanks mainly to FII buying. India Inc. is tightening its belt and not going for frivolous acquisitions or overseas borrowings.

Though capital expenditure has slowed down, government is belatedly taking steps to improve the investment climate. 2013 is expected to be better than 2012 for the economy and the stock market.

(Note: A limited number of new subscriptions to my Monthly Investment Newsletter is being offered till July 21 ‘13. If you are interested in adding good mid-cap/small-cap stocks to your portfolio, but are not sure which stocks to pick, book your subscriptions now to my Monthly Investment Newsletter.)

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