Nifty chart: a mid-week update (Sep 11, ‘13)

The closing chart pattern of Nifty shows an interesting tussle between bulls and bears that has not been satisfactorily resolved yet. Why not? Because of contradictory technical signals favouring both sides. The bullish and bearish signs are mentioned below:

Bullish

1. The index is trading above all three EMAs – rallying sharply from oversold condition
2. After dropping below the long-term up-trend line, the index formed an inverted head-and-shoulders reversal pattern and rose sharply above the trend line
3. The sharp rally has been accompanied by rising volumes
4. 3 of the 4 technical indicators – ROC, RSI, Slow stochastic - are showing positive divergences by touching or crossing their Jul ‘13 tops, while the index reached a lower top

Bearish

1. Both 20 day and 50 day EMAs are below the 200 day EMA, though both are turning up; the ‘death cross’ was a ‘sell’ signal
2. The index made a classic pullback to the long-term moving average after its initial breakdown below it, which is a ‘sell’ signal; it may fall below the up-trend line again
3. The 5-days rally has been too sharp; such sharp rallies don’t sustain for long; the down-trend line (marked DTL) is likely to resist the rally
4. ROC and Slow stochastic are in their overbought zones; RSI is about to enter its overbought zone; only MACD isn’t looking overbought; the rally may soon be over

FIIs have recently turned net buyers again, while DIIs have turned net sellers. The Rupee has gained a little against the US Dollar. Current account deficit has shown some contraction due to reduced imports and a slight improvement in exports. Several FDI projects have been cleared in a hurry. The cumulative effect of all these steps has led to an improvement in sentiment, though the economy is far from returning to a growth trajectory.

Improved sentiment leads to bullishness in the near term. Nifty chart is reflecting that. This is not the time to jump in with both feet. Pick your stocks carefully with a long-term view.