Nifty chart: a mid-week update (Oct 07 ‘15)

After heavy selling in the previous 2 months, FIIs have turned net buyers of equity. During the first 4 trading days in Oct ‘15, their net buying has been worth Rs 1125 Crores, as per provisional figures. DIIs have been net sellers of equity worth Rs 125 Crores.

Monsoon has withdrawn from most parts of the country. Rainfall deficiency – though acute in a few pockets – has been more or less within the ‘normal’ range. Rural consumption should not get affected too much.

Anecdotal evidence suggests that government spending on infrastructure is picking up. It may be too late to get reflected in Q2 (Sep ‘15) results of India Inc. Expect better results in Q3 and Q4.

The daily bar chart pattern of Nifty had fallen below the long-term ‘support-resistance zone’ between 8180 and 8630 with a 165 points downward ‘measuring gap’ on Aug 24 ‘15.

The subsequent ‘death cross’ (marked by light blue circle) of the 50 day EMA below the 200 day EMA had technically confirmed a bear market.

The index has completed the formation of an ‘inverse head and shoulders’ reversal pattern – with the lower edge of the ‘measuring gap’ as its neckline.

By climbing above the neckline with good volume support, the index has partly filled the ‘gap’ - but is facing twin resistance from its 200 day EMA and the 8180 level (lower edge of the ‘support-resistance zone’).

Daily technical indicators are in bullish zones but beginning to show some weakness. MACD has entered positive zone. ROC is moving sideways in positive zone, and showing negative divergence by touching a lower top.

RSI has turned down after facing resistance from the edge of its overbought zone. Slow stochastic is well inside its overbought zone.

Is the 7 months long correction from the Mar ‘15 lifetime high of 9119 finally over? It would appear so. However, expect bears to remain in the picture till the index can completely fill the ‘measuring gap’ and convincingly cross above the 8630 level (upper edge of the ‘support-resistance zone’).

That can only happen after some consolidation - provided that FIIs continue their net buying.

Remain cautiously optimistic but try not to jump in feet first.