Wednesday, February 19, 2014

Nifty chart: a mid-week update (Feb 19, ‘14)

The Finance Minister presented a ‘Vote on Account’ rather than a full budget because 2014 is an election year. It was expected to be a non-event and it was. Barring some sops to the struggling auto industry and some lofty target setting for tax collections, there wasn’t much to get excited about.

So, why has the Nifty rallied for 4 straight days? No prizes for guessing that FIIs have again turned net buyers, while DIIs have turned net sellers. Trading volumes haven’t been great, which raises questions about the sustainability of the rally.

The good news is that Nifty has closed above its 20 day and 50 day EMAs. It has retraced 50% of its fall from the Jan ‘13 peak of 6355 to the Feb ‘14 trough of 5933. Both are bullish signs. The bad news is that the index has not yet crossed the half-way point between the upper and lower edges of the ‘rectangle’ within which it has been consolidating since Oct 9 ‘13.


What is the significance of the half-way point of the ‘rectangle’? For explanation, a dotted horizontal line has been drawn through the middle of the ‘rectangle’ (at 6160). In one of those coincidences visible on many price charts, note how this particular level has acted as a support/resistance level.

Daily technical indicators are turning bullish. MACD has crossed above its signal line in negative territory. The signal line is in the process of forming a bullish ‘rounding bottom’ pattern. ROC has crossed above its 10 day MA into positive territory, but its upward momentum has slowed down. The 10 day MA has formed a bullish ‘rounding bottom’ pattern. RSI has crossed above its 50% level. Slow stochastic has just entered its overbought zone.

Bulls have successfully defended the lower edge of the ‘rectangle’, as the index didn’t close below the ‘rectangle’ even for a single day. But the current rally is lacking buying support. Expect some more consolidation within the ‘rectangle’ till political alignments for the election become clearer.

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