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Wednesday, July 22, 2015

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

Greece’s debt problem has been temporarily resolved. Iran’s nuclear deal has brought forth mixed global reactions. Gold and oil prices are down again. These are all positive news for the Indian market.

All eyes are now on Q1 (Jun ‘15) results. Infosys positively surprised the market. Asian Paints and HUL declared in-line results. Sun Pharma projected weak numbers and its stock price collapsed.

FIIs are in buying mood again. As per provisional figures, their net buying in equity has touched Rs 3600 Crores in July. DIIs have been net sellers of equity worth Rs 2250 Crores.

Nifty_Jul2215

The daily bar chart pattern of Nifty has been in an up trend since touching a low of 7940 on Jun 12 ‘15. By touching an intra-day high of 8647 on Jul 21 ‘15, the index has retraced 60% of its fall from the Mar 4 ‘15 top of 9119.

The retracement is close to the 61.8% Fibonacci retracement level (of 8670) – which is the ‘Lakshman rekha’ for a trend reversal. In other words, if Nifty crosses above 8670 with good volume support, bears may pack their bags and go for a vacation.

Note how bears are trying their best to defend the 8630 level, which is the upper boundary of the ‘support-resistance zone’. They know that once 8630 level gets breached, bulls will get encouraged to take the index past 8670.

Are Fibonacci level’s sacrosanct? The answer is: No. Why? Because price charts don’t understand arithmetic. Only technical analysts know the significance of Fibonacci levels, and they tend to buy/sell near those levels.

So, don’t be surprised if the index reaches 8670 and then drops down again. Specially, if volume support is lacking. Note that volumes have remained more or less flat during the up trend from the Jun 12 low of 7940.

Also, recent down days have taller volume bars than those on up days. That is an indication of strong bear presence.

Good news for bulls is that the index tested support from the up trend line for the second time and bounced up. Successful tests of support tends to strengthen a trend line.

Technical indicators are in bullish zones, and showing some upward momentum. All three EMAs are rising, and Nifty is trading above them in a bull market.

Battle lines are clearly drawn. It will be interesting to see who gets the upper hand – retreating bears or charging bulls.

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