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Wednesday, December 10, 2014

Nifty chart: a mid-week update (Dec 10 ‘14)

Current account deficit climbed up during the quarter ended on Sep ‘14, but that wasn’t the real cause of the ongoing correction in Nifty. Slow down in the Chinese economy and political uncertainty in Greece led to a bout of profit booking in global markets.

The insurance bill – for raising FDI limit in the sector from 26% to 49% - has been tabled in Rajya Sabha, where BJP is in a minority. With Congress dropping its earlier opposition, the bill may finally be passed in both houses.

The unnecessary hold-up in Parliament proceedings due to intemperate remarks made outside the house by a novice BJP minister and a TMC MP have now been amicably concluded. More important activities for nation building may hopefully proceed without further interruptions.

India Inc. is getting impatient with the slow progress of the government on the reforms front, and RBI’s insistence on waiting for a more appropriate opportunity to lower interest rates. However, international fund managers have appreciated RBI’s stance.

Nifty_Dec1014

After almost a one-way rise from the Oct 17 ‘14 low of 7724 to the Dec 4 ‘14 top of 8627 – a gain of 903 points (11.7%) in 6 weeks – Nifty formed a small ‘double-top’ reversal pattern that has so far led to a correction of 310 points from the top.

That amounts to a 34.3% retracement of the rally from the Oct 17 ‘14 low - which is slightly less than the Fibonacci retracement level of 38.2%. Does that mean that the correction hasn’t ended?

Daily technical indicators are looking bearish, but not oversold. MACD is falling below its signal line in positive territory. ROC has dropped below its 10 day MA into negative zone. RSI has slipped below its 50% level. Slow stochastic has just entered its oversold zone.

The index has dropped below its 20 day EMA, and is trying to find support from its rising 50 day EMA. If the support does not hold, the Sep ‘14 top of 8180 (marked by dotted horizontal line) should provide stronger support.

Expect the index to consolidate a bit around current levels before resuming its up move. The correction has neutralised overbought conditions and improved the technical ‘health’ of Nifty’s chart.

The rising 200 day EMA, and a bullish index chart pattern of ‘higher tops and higher bottoms’ are indications that the long-term bull market is under no threat.

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