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Wednesday, September 16, 2015

Nifty chart: a mid-week update (Sep 16 ‘15)

Inflation seems to be well under control. WPI fell for the 10th straight month to –4.95% in Aug ‘15, compared to –4.05% in Jul ‘15 and 3.85% in Aug ‘14. CPI dropped slightly to 3.66% compared to a downwardly adjusted 3.69% in Jul ‘15 and 7.03% in Aug ‘14. An interest rate cut at the end of the month seems likely.

It wasn’t all good news. India’s exports contracted for the 9th month in a row – falling 20.66% in Aug ‘15. Dip in global demand was the main culprit. Imports declined by almost 10%. Trade deficit was lower at $12.47 Billion compared with $12.81 Billion in Jul ‘15.

FIIs are still in bearish mode. Their net selling in equities nearly touched Rs 1200 Crores during the three days of trading this week. DIIs remained bullish. Their net buying in equities was almost Rs 1100 Crores.

NIFTY_Sep1615

Bears (i.e. FIIs) are in control of the daily closing chart pattern of Nifty. All three EMAs are falling. The index is trading below them. The ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by blue oval) technically confirmed a bear market.

There are some signs of trend change. Nifty formed a small inverse head-and-shoulders reversal pattern after a sharp correction with a downward ‘gap’ (refer chart in previous update) followed by an upward break out above, and a pullback towards, the neckline.

The upward break out above the neckline was not accompanied by a volume surge. That puts a question mark on the technical validity of the break out.

Today, the index faced the first line of resistance from its falling 20 day EMA. Stronger resistance is likely from the falling 50 day and 200 day EMAs and the 165 points downward ‘gap’ (not shown) that formed on Aug 24 ‘15. Bulls have their work cut out.

Daily technical indicators are showing some upward momentum. MACD has crossed above its signal line but is yet to emerge from its oversold zone. The signal line has formed a bullish ‘rounding bottom’ pattern. RSI is gradually moving up towards its 50% level after bouncing up from the edge of its oversold zone. Slow stochastic has entered bullish zone by climbing above its 50% level.

On longer term weekly chart (not shown), Nifty is trading below its 20 week and 50 week EMAs but above its rising 200 week EMA. The long-term bull market is intact. The correction will improve the technical ‘health’ of the chart, enabling the index to touch new highs. But that will take some time.

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