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Wednesday, September 23, 2015

Nifty chart: a mid-week update (Sep 23 ‘15)

FIIs remain wary of the economic slowdown in China and a possible interest rate hike in the USA, and is pulling out from emerging markets in a big way. India has also been affected by the global sell-off, though its economy is in much better shape than most emerging markets.

As per provisional figures, FIIs have been net sellers of equity worth Rs 2200 Crores during this week, while DIIs have been net buyers of equity worth Rs 1400 Crores. Interestingly, FIIs were net buyers on Mon. Sep 21 – so most of their selling occurred in the past 2 days.

Good rainfall in states like Maharashtra, Goa, Madhya Pradesh, Chattisgarh has filled reservoirs and brought down the overall monsoon deficiency to 13% – well within the ‘normal’ range of –19% to +19%. However, the deficiency in South and North East India and parts of UP is higher.

Nifty_Sep2315

Bears (read: FIIs) continue their stranglehold of the daily closing chart pattern of Nifty. After briefly crossing above its 20 day EMA, the index has dropped below it, and has closed below its three EMAs in bear territory.

It is not all gloom and doom for bulls. The index may be forming a complicated ‘inverse head and shoulders’ reversal pattern with a downward-sloping neckline below the large ‘gap’ that appeared on the daily bar chart a month ago.

The ‘left shoulder’ (marked LS) of the likely ‘inverse head and shoulders’ pattern was itself a small ‘double bottom’ reversal pattern. The index rose to the downward-sloping neckline, but dropped lower to form the ‘head’, which was itself a small ‘inverse head and shoulders’ reversal pattern.

The index rose again to the downward-sloping neckline, then dropped to test support from the neckline of the ‘head’ and then bounced up slightly today. If the index can rally some more, the ‘right shoulder’ (marked RS?) of the complicated ‘inverse head and shoulders’ pattern will complete its formation – leading to an upward break out above the downward-sloping neckline, and a possible filling of the ‘gap’.

It may be a big IF, because of the F&O expiry tomorrow. If FIIs continue to sell, the complicated ‘inverse head and shoulders’ pattern will get negated and Nifty may fall below the ‘head’ (7559).

Daily technical indicators are showing bullish signs. MACD has emerged from its oversold zone and is rising above its signal line. Note that the signal line has formed a bullish ‘rounding bottom’ pattern. ROC faced resistance from the edge of its overbought zone, and is falling towards its rising 10 day MA. RSI has managed to move above its 50% level. Slow stochastic has reversed direction after facing resistance from the edge of its overbought zone.

On longer term weekly chart (not shown), Nifty is trading sideways below the weekly ‘gap’ formed in the week ending on Aug 28 ‘15, and its 20 week and 50 week EMAs but closed above its rising 200 week EMA. The long-term bull market is intact. Weekly technical indicators are in bearish zones. Nifty will take some more time to reverse the down trend that began in Mar ‘15.

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