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Wednesday, May 7, 2014

Nifty chart: a mid-week update (May 07 ‘14)

Nifty_May0714

Nifty had broken out of its 5 months long sideways consolidation within a ‘rectangle’ 2 months ago. The index continued its up move past the 6750 level – which was the upward target after the break out from the ‘rectangle’.

Nifty hit an all-time intra-day high of 6870 on Apr 25 ‘14, but formed a ‘reversal day’ pattern and started a correction that is ongoing. The index has dropped below its 20 day EMA and is seeking support from the 6640 level.

Any particular significance of the 6640 level? Sort of. The rise from the top of the ‘rectangle’ to the all-time high was about 520 points. The fall from the top has been 230 points; i.e. a 44% retracement, which is close to the 50% Fibonacci retracement level.

Also, the 6640 level has seen multiple bottoms over the past 5 weeks. A bounce up from here will not be a surprise. The rising 50 day EMA is another likely support in case the Nifty slips some more.

Daily technical indicators have turned bearish, but looking a bit oversold. MACD is still positive, but falling rapidly towards the ‘0’ line. ROC is sliding deeper into negative territory below its 10 day MA. RSI is just above its oversold zone and falling. Slow stochastic is at the edge of its oversold zone.

Overbought conditions that existed through Mar and Apr ‘14 have been corrected. FIIs have been net buyers during the first 4 trading sessions in May, but their activity have been a little low-key. DIIs (i.e. MFs) continue to be sellers – as retail investors have been leaving the market in droves.

Nifty is nicely poised for its next move. Will it be down or up? What do you think?

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