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Wednesday, August 7, 2013

Nifty chart: a mid-week update (Aug 07, ‘13)


Bears appear to have taken almost complete control of the daily bar chart pattern of Nifty (above). Why almost? Because a couple of technical confirmations are still awaited – and bulls just might put up a fight before capitulating. Many good stocks – large-cap as well as mid/small-caps – are trading at attractive valuations.

The index is trading below all three EMAs, and has formed a bearish pattern of lower tops and lower bottoms. The 20 day EMA is about to cross below the 200 day EMA. If the 50 day EMA also crosses below the 200 day EMA, the ‘death cross’ will technically confirm a bear market.

Nifty has entered the ‘gap’ zone (between 5447 and 5527 – marked by blue dotted parallel lines) that formed back in Sep ‘12. Ignoring the ‘error trade’ of Oct 5 ‘12 because the ‘error’ did not appear on Nifty Futures or Sensex charts, the ‘gap’ has provided good support to the index so far. The ‘gap’ was partly filled in Apr ‘13.

Will the ‘gap’ get completely filled this time, or will the index bounce up once again? Note that the blue up trend line connecting the Dec ‘11 and Jun ‘12 lows is currently at the lower edge of the ‘gap’. Filling the ‘gap’ completely would mean a breach of the up trend line as well – and that may lead to a reversal of the entire up trend since Dec ‘11.

Any further fall is likely to attract investment buying. Daily technical indicators are looking bearish and quite oversold. While an index can remain oversold for long periods, a technical bounce can occur at any time.

Remain cautious, but don’t panic. The best time to invest is when most investors are running away from the market. If you do have the courage to invest, select your stocks carefully. At the very least, prepare a ‘buy’ list. This bear phase will eventually pass.

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