Wednesday, January 6, 2016

Nifty chart: a midweek update (Jan 06 ‘16)

Global stock markets are perfect examples of the proverb: "Misfortune never comes alone." First it was the Chinese economic slowdown and the Saudi-Iran tussle that sent markets crashing on Mon. Jan 4 '16.

Today came twin shocks of Chinese Yuan devaluation and testing of a hydrogen bomb by North Korea. Jittery markets slipped further.

FIIs have been net sellers of equity worth Rs 1000 Crores during the first four trading days in Jan '16. Net buying in equity by DIIs of a paltry Rs 300 Crores was not enough to stop Nifty's fall of 220 points.

The long-term closing chart pattern of Nifty 50 may be forming a 'rounding top' reversal pattern that is more clearly visible on the 200 day EMA. Such a pattern will get completed if the index falls convincingly below the long-term support level of 7550.

The index is in the process of retracing the entire rise of 3672 points from the Aug '13 closing low of 5285 to the Mar '15 top of 8957. A 38.2% Fibonacci retracement gives a level of 7555 - which coincides almost exactly with the closing low of 7559 touched in Sep '15 and the long-term support level of 7550.

Daily technical indicators are looking bearish and showing downward momentum. That means this week's correction isn't over yet.

There is a very good chance that bulls will strongly defend the 7550 level. But what if FII selling continues and 7550 is breached? How low can Nifty fall?

Here are some possibilities:

  • a 50% Fibonacci retracement can take the index down to 7120
  • two support/resistance levels are marked by dotted lines at 6840 and 6360
  • downward target of the 'rounding top' pattern is 6160

Before you rush towards the exit gate, please remember that Nifty is trading in a long-term bull market - as it is trading well above its rising 200 week EMA (not shown on chart). Nifty should find a floor somewhere between 7550 and 7120 - in case 7550 does get breached on a closing basis.

The corrective move during the past 10 months is a bull market correction that will enable the index to improve its technical 'health' and enable it to rise to new highs.

When? That's a million dollar question. I'm not a betting person, but if I were I would place a bet on "sometime after Sep '16".

Last, but definitely not the least, a BIG thank you to blog follower Karthik Raghavan Ravi for pointing out the 'rounding top' pattern on the long-term chart of Nifty. 

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1 comment:

Unknown said...

like i had said in my previous comment, either our market needs to correct more or earning has to pick up in this quarter. In the US markets bears are gaining and bulls are loosing.If the bulls are not able to move price up soon, the us markets will see some significant decline in the next few months.In that case we might hit 6500 on nifty. As of now, in nifty, the first point to watch is supply demand imbalance around 7540. Lets see how things pan out once 7540 is taken out, which i believe will be breached.