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Wednesday, February 4, 2015

Nifty chart: a mid-week update (Feb 04 ‘15)

Some analysts were hoping for another interest rate cut this week. However, the consensus estimate was that after the surprising rate cut announcement  in Jan ‘15, RBI will hold off on further cuts till the budget at the end of this month. So, the status quo announcement by RBI – except for a minor cut in the SLR – came as no surprise.

Q3 results are coming in thick and fast – but there hasn’t been much cheer for the market. Top line and bottom line pressures are clearly visible in large and small companies. There have been a handful of exceptions, but not enough to maintain bullish sentiment.

FIIs and DIIs have been in profit-taking mode during the first three trading days in Feb ‘15. However, their combined net sales in equity totalled less than Rs 1500 Crores. As a result, Nifty has corrected just about 3.2% from the lifetime high of 8997 touched on Jan 30.


The daily bar chart pattern of Nifty has dropped to seek support from its 20 day EMA and the support-resistance zone between 8180 and 8627 - which are its previous tops touched in Sep ‘14 and Dec ‘14. Previous tops tend to act as support levels.

Will the index bounce up from the current level? Or, will it continue to correct, and find support from its 50 day EMA (which is inside the support-resistance zone)? Knowing the answers to those two questions can make short-term traders rich – but should not matter much to long-term investors.

A 3% correction in a bull market should have very little consequence for the long-term – other than removing overbought conditions that prevent an index (or stock) from moving higher.

All four daily technical indicators have corrected overbought conditions. MACD has dropped down from its overbought zone to seek support from its rising signal line. ROC has crossed below its 10 day MA, and is poised to enter negative territory.  RSI has dropped to the edge of its overbought zone. Slow stochastic has slipped down from its overbought zone.

Some more correction or consolidation is possible. But there are no signs of a big correction – despite strong volumes during the past three down days.

Nifty continues to trade above its three EMAs in a long-term bull market. The next triggers for bulls may come from the Delhi election results – where AAP is surprisingly ahead in the initial polls – and the budget.

Hold on to your portfolios. Some times inaction can be a virtue. But do continue with your regular monthly investments/SIPs.

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