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Wednesday, September 17, 2014

Nifty chart: a mid-week update (Sep 17 ‘14)

WPI inflation in Aug ‘14 dropped for the third straight month to a 5 yr low of 3.74% – significantly lower than 5.19% in Jul ‘14 – thanks to lower oil price and higher base effect. The RBI Governor however ruled out an interest rate cut because CPI inflation still remains high.

Exports grew only 2.35% in Aug ‘14 – the lowest growth in 5 months – while imports grew 2.08%, but the trade deficit was down to $10.7 Billion from $12.2 Billion in Jul ‘14 due to lower oil import cost. Export growth may remain low due to slow economic growth in the Euro zone.

Bearish technical signals (mentioned in last week’s post) led to a continuation of the correction from the Sep 8 ‘14 intra-day top of 8180. The index dropped below its 20 day EMA to an intra-day low of 7925 on Sep 16 before pulling back to the 20 day EMA today.

Nifty_Sep1714

Is the correction over, or can Nifty correct some more? Note that the last leg of the rally from the intra-day low of 7540 (touched on Aug 8 ‘14) to the intra-day top of 8180 (touched on Sep 8 ‘14) covered 640 points.

By touching an intra-day low of 7925 on Sep 16, the index retraced about 40% of the rally – greater than the 38.2% Fibonacci retracement level, but less than the 50% Fibonacci retracement level of 7860 (which is just above the current level of the 50 day EMA).

Higher volumes on down days indicate that bears are active – so the correction may continue a bit longer. Daily technical indicators are looking bearish. MACD has crossed below its signal line in positive zone. ROC has dropped inside its negative zone. RSI is seeking support from its 50% level. Slow stochastic is falling sharply towards its oversold zone.

Nifty is in a long-term bull market. Overbought conditions have been corrected, improving the technical ‘health’ of the chart. FIIs were net buyers today after being in profit booking mode during the first two days of the week.

Setbacks for the BJP in the recent by-elections may have affected market sentiments a little. Expect the up move to resume shortly.

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