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Wednesday, August 12, 2015

Nifty chart: a mid-week update (Aug 12 ‘15)

An unexpected devaluation of the Chinese Yuan spooked FIIs, who went on a selling spree in global markets. As per provisional figures, they were net sellers of equity worth Rs 2600 Crores this week. DIIs turned net buyers of equity worth Rs 1300 Crores – not enough to prevent a sharp correction in Nifty.

For Q1 (Jun ‘15), Tata Steel announced lower top line but a higher bottom line – thanks mainly to other income. SBI also announced decent bottom line growth. Hindalco suffered due to a loss announced by its Novelis subsidiary. Vedanta looked up after resuming its Goa mining operations. But the Yuan devaluation has cast a shadow over all metal (and tyre) stocks.

There was very good news on the economic front. CPI inflation dropped to 3.78% in Jul ‘15 against 5.4% in Jun ‘15 – raising the prospect of a cut in interest rates by RBI. The Index of Industrial Production (IIP) grew to 3.8% in Jun ‘15 – led by manufacturing growth – against 2.7% in May ‘15. Market should celebrate the twin good news.


The daily bar chart pattern of Nifty faced resistance from the 8630 level (which is the upper edge of the ‘support-resistance zone’) and dropped down below its 50 day EMA and the blue up trend line. Bears were expected to put up a fight to defend the 8630 level, and they did.

The 200 day EMA is still rising and the index closed above it – so Nifty is technically in a bull market. An upward bounce from the 200 day EMA or the 8180 level (lower edge of the ‘support-resistance zone’) should restore bullish sentiments.

Daily technical indicators are looking bearish and showing downward momentum. MACD has formed a ‘head and shoulder’ like pattern and crossed below its signal line in positive territory. ROC has dropped to touch its 10 day MA at the ‘0’ line. RSI and Slow stochastic have moved below their respective 50% levels.

Some more correction is likely. There is no need to worry about a big crash yet. However, a global currency war triggered by the Yuan devaluation may cause a drop below the Jun ‘15 low of 7940. That will be bearish, and lead to a deeper correction.

As a dear departed friend was fond of saying: “Hope for the best, but be prepared for the worst.”

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