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Wednesday, September 2, 2015

Nifty chart: a mid-week update (Sep 02 ‘15)

Economic slowdown in China, and its possible repercussions on global economic growth, have sent FIIs on a selling spree. Global stock markets are in danger of slipping into bear markets. Some have done so already.

During Aug ‘15, FIIs were net sellers of equity worth a huge Rs 19300 Crores – exceeding their net sales back in Oct ‘08 (when the previous bear market had hit bottom). DIIs were net buyers of equity worth Rs 16300 Crores.

Auto sales in Aug ‘15 were a mixed bag. Hyundai showed good growth. Maruti grew <5%. Tata Motors declared flat sales. M&M and Hero Moto showed double digit degrowth. Medium and heavy commercial vehicle sales are improving, which is a sign of underlying economic growth.

Nifty_Sep0215

From the 3rd week of Jun ’15, the daily bar chart pattern of Nifty started forming a ‘rounding top’ reversal pattern that ended with a ‘gap’ down fall below its 200 day EMA on Fri. Aug 21. Though the index pulled back to close just above the 200 day EMA inside the ‘support-resistance zone’, a fall with a ‘gap’ below an important support level has strong bearish technical significance.

On Mon Aug 24, the index opened with a bigger 165 points downward ‘gap’ and dropped to a low of 7769, accompanied by a surge in volumes. On Tue Aug 25, it dropped to a lower low of 7667 but closed higher on another strong volume surge - forming a ‘reversal day’ pattern.

On Fri. Aug 28, Nifty pulled back towards the ‘gap’ and partially filled the ‘gap’ on intra-day basis, but closed below the ‘gap’. The ‘gap’ is likely to act as a resistance zone to near-term up moves.

The first, smaller ‘gap’ on Aug 21 is a ‘breakaway gap’. The second, larger ‘gap’ on Aug 24 is a ‘measuring gap’ - which usually occurs in the middle of a down (or up) move.

From the peak of the ‘rounding top’ pattern – from where the current leg of the down move started – to the middle of the ‘measuring gap’ is a fall of about 513 points. The downward target for Nifty is, therefore, 513 points below the middle of the ‘gap’ – i.e. at 7630.

Nifty touched a low of 7667 (which is 37 points above 7630), so the downward target may have been met already. That doesn’t mean the index can’t fall even lower.

Today, Nifty closed at 7717 – which is a 52 week low, and the lowest close since Aug 12 ‘14.

Daily technical indicators are looking bearish and oversold. MACD and ROC are inside their respective oversold zones. RSI and Slow stochastic are about to re-enter their respective oversold zones.

The NSE TRIN, a breadth indicator, is looking quite oversold. It is close to the level last seen when Nifty touched its Jun ‘15 low of 7940. An upward bounce can occur at any time.

On longer-term weekly chart (not shown), Nifty formed a rare weekly ‘gap’ below its 50 week EMA, but is trading well above its rising 200 week EMA in a long-term bull market. Weekly technical indictors are in bearish zones and showing downward momentum.

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