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Wednesday, October 9, 2013

Nifty chart: a mid-week update (Oct 09, ‘13)

The down trend in Nifty, which started after the index hit its May ‘13 top, lasted till the end of Aug ‘13 – dropping the index into bear territory. Most market experts started predicting much lower levels of 4500 and 3700. Sentiments were quite negative. Economic news was getting worse by the day.

As often happens when consensus is bearish, the index jumped up sharply during Sep ‘13. Even seasoned investors and experienced analysts were surprised by the high volume of buying. Such sharp rallies seldom sustain. Daily technical indicators showed overbought conditions, and a couple of them displayed reversal patterns.

A correction ensued and the index dropped quickly to its 200 day EMA by the end of Sep ‘13. The subsequent ‘V’ shaped recovery has taken the index above the psychological 6000 level at the end of trading today. Can the index sustain above the 6000 level and move up to touch a new 52 week high?

Nifty_Oct0913

Technical indicators are turning bullish, so a new high is definitely within the realm of possibilities. MACD has crossed above its signal line in positive zone. ROC has crossed above its falling 10 day MA into positive territory. Both RSI and Slow stochastic have moved above their respective 50% levels. All three EMAs are rising, and Nifty is trading above them – which is the sign of a bull market.

The current account deficit reduced considerably, thanks to lower imports and higher exports. The reduction in deficit should allay a major concern of overseas investors. But the parting of ways between Bharti and Walmart may queer the pitch for FDI in multi-brand retail. Uncertainty due to the US debt ceiling problem is another bearish overhang.

Be cautiously optimistic. That means accumulating fundamentally strong stocks, but with proper stop-losses.

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