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Wednesday, October 23, 2013

Nifty chart: a mid-week update (Oct 23, ‘13)

What a difference FII buying makes! Less than two months back, market sentiment was at rock bottom. FIIs were selling and all analysts and experts were predicting significantly lower levels for Nifty. Bulls seemed to have turned tail and were running away in sheer panic.

As soon as FIIs started buying again, shorts got trapped and market jumped up sharply. Now all bearish analysts and experts have not only turned bullish, but are predicting life-time highs for Nifty before the end of the year.

After touching a new 52 week high, the index is expectedly letting off some steam. Periodic corrections in a bull market improve the technical ‘health’ of price charts by eliminating froth and gathering strength to rise higher. So, should you buy, sell or hold?

Nifty_Oct2313

The answer to the question is: It depends. On what? On your state of investment maturity. If you are new to the stock market, stifle your impulse to jump in. Markets tend to get jittery near new highs – simply because those who entered at a previous high are staring at a big loss and want to escape in a hurry. Use your savings to invest regularly in a good balanced fund and build up your capital over the next 3-5 years.

If you have invested in the market for some time, but have a penchant for accumulating unknown mid-cap and small-cap stocks – use the current sector rotation to get out and invest in a few good large-caps that are still reasonably priced. Like? Hindalco and TISCO come to mind.

If you are a seasoned investor and have a proper asset allocation plan in place, your plan should tell you what to do. What are the technical indicators saying? Three of them – MACD, RSI, Slow stochastic – are inside their overbought zones and showing signs of reversing. ROC is not in overbought zone, but displaying negative divergence by failing to touch a new high with the index.

Expect some more correction, but remember that many global stock indices are at or near life-time or 52 week highs. That is a sign of a global bull market.

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