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Wednesday, April 22, 2015

Nifty chart: a mid-week update (Apr 22 ‘15)

FIIs have been in serious selling mode during the past few trading sessions. Demand notices sent by the Income Tax department for paying Minimum Alternative Tax (MAT) on past capital gains have sent alarm bells ringing.

MAT on capital gains have been removed from Apr ‘15 onwards by the Finance Minister. The junior FM, Jayant Sinha, tried to assuage FII concerns by clarifying that investors based in jurisdictions that have tax treaties with India will not be subject to MAT.

That may have led to the late buying surge in the stock market today after five straight days of correction.

Nifty_Apr2215

The daily bar chart pattern of Nifty formed a ‘reversal day’ pattern (lower low, higher close) after dropping close to the lower edge of the ‘support-resistance zone’ between 8180 and 8630.

Can the index correct some more? The answer would have been an emphatic ‘No’ had the volumes been stronger today. Even if the index corrects some more, it is likely to receive strong support from its 200 day EMA (which has merged with the lower edge of the ‘support-resistance zone’).

Technical indicators are looking bearish. MACD is falling below its signal line in negative territory. ROC has dropped sharply below its 10 day MA into negative zone. RSI has slipped below its 50% level. Slow stochastic has fallen to the edge of its oversold zone.

The blue Up trend line 2 had tracked Nifty’s bull rally from its Aug ‘13 low. But it was breached in Mar ‘15, followed by a pullback that failed to convincingly cross above it. That should be good enough reason to discard it.

Note that a single breach of a trend line does not mean that the bull market has ended (or, will end soon). A less steep trend line (Up trend line 3?) may need to be drawn from the Feb ‘14 low. That can be done after Nifty bottoms out – if it has not already done so.

Remember that as long as the 200 day EMA keeps rising and Nifty trades above it, all corrections are to be treated as bull market corrections. That means, ‘buy the dips’.

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