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Wednesday, February 11, 2015

Nifty chart: a mid-week update (Feb 11 ‘15)

In a classic reversal of stock investment wisdom, market players sold on rumour and bought on news. Exit polls showed an AAP victory in the Delhi election – Nifty dropped with a downward ‘gap’. Actual results showed an unprecedented margin of victory – Nifty rose two days in a row!

What on earth is going on here? The logic is: the Modi government is likely to hasten infrastructure spending and announce reform measures in an effort to regain the ground lost to AAP. Is it going to happen? Let us wait and see.

Meanwhile, FIIs have continued with their selling spree. Their net selling in equities in Feb ‘15 has touched Rs 3400 Crores as per provisional figures. DIIs have turned net buyers worth about Rs 1500 Crores.

Nifty_Feb1115 

The daily bar chart pattern of Nifty dropped below its 20 day EMA into the support-resistance zone (marked by blue dotted lines on chart), but received good support from its 50 day EMA.

The index formed a bullish ‘reversal day’ pattern (lower low, higher close) on Feb 10, and bounced up to close almost exactly on the 8627 level (its previous top in Dec ‘14).

All four technical indicators are looking bearish, but showing signs of turning around. MACD is falling below its signal line in positive zone. ROC has bounced up weakly from the edge of its oversold zone. RSI has dropped below its 50% level, but has stopped falling. Slow stochastic entered its oversold zone, but is trying to come out.

Could this be the start of a pre-budget rally? Volumes and market breadth are hinting at the possibility. But bears aren’t likely to give up as long as the index trades below its Jan ‘15 top of 8997 (which is a good 370 points away).

Nifty is trading well above its rising 200 day EMA in a long-term bull market. The 6% correction has improved the technical ‘health’ of the chart. Many good stocks have corrected much more than 6%. Those are the ones to add.

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