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Wednesday, May 20, 2015

Nifty chart: a mid-week update (May 20 ‘15)

The big boys have started announcing their Q4 results, but there is not much to feel excited about. Tata Steel announced a huge loss. A few PSU banks bucked the trend by declaring decent set of numbers.

Unseasonal rains had damaged standing crops but filled up water reservoirs. A possible early onset of monsoon may further reduce the effects of below-normal rains.

NHAI has targetted about 5600 KM of new road projects in this fiscal year. A likely interest rate cut by RBI should also be a tonic for bulls. The government is lining up a list of 25 PSUs for divestment. That can keep the secondary market depressed.

Nifty_May2015

The daily closing chart pattern of Nifty broke out above its 20 day EMA and the neckline of an ‘inverted head and shoulders’ bottom reversal pattern – thanks to combined net buying by FIIs and DIIs on Mon. May 18.

A look at the volume bars does not inspire much confidence about the sustenance of the rally. An upward breakout requires a significant increase in volumes to technically validate the breakout.

The index is facing resistance from its falling 50 day EMA, and is trading well below the blue down trend line connecting its Mar ‘15 and Apr ‘15 tops. So, bulls have their work cut out.

Daily technical indicators have turned bullish. MACD is rising above its signal line in negative zone. Note the bullish ‘rounding bottom’ pattern formed by the signal line. ROC has climbed to the edge of its overbought zone. RSI has moved above its 50% level. Slow stochastic has entered its overbought zone.

As long as the index remains below the blue down trend line, bears can be expected to attack at any time. A pullback to the neckline is a distinct possibility.

The index is trading above its 200 day EMA in a bull market. A correction in a bull market is an opportunity to add.

Aggressive buying is not recommended. A gradual accumulation of fundamentally strong stocks with a long-term investment horizon may be a better idea.

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