Wednesday, February 3, 2016

Nifty chart: a midweek update (Feb 03 '16)

FIIs were net buyers of equity worth Rs 250 Crores on Feb 1 '16, but turned net sellers worth Rs 470 Crores on the next two days, as per provisional figures. DIIs were net sellers worth Rs 1000 Crores during the first three days of the month.

RBI Governor maintained interest rate status quo - as was the consensus expectation. Even then, Nifty faced strong selling post the announcement on Tue. Feb 2. The budget on Feb 29 will be the next trigger for the market. 

Auto sales in Jan '16 were mixed. Maruti and Hyundai showed slight increase in domestic car sales, but exports slumped. M&M grew domestic and export sales. Tata Motors' M&HCV sales grew, but car sales fell. Eicher has a winner with the fast growing Royal Enfield, but Hero Moto showed only a marginal increase in 2-wheeler sales.

The following comment appeared in the previous post on Nifty: "... pullback to the 7540 level may be used as a selling opportunity by bears."

Nifty crossed above its falling 20 day EMA to touch an intra-day high of 7600 on Feb 1, but dropped to the 7540 level before closing slightly above the support level.

The index dropped well below its 20 day EMA and the 7540 level on Feb 2 due to combined FII and DII selling after the RBI interest rate announcement.

There was no sudden change in domestic or global economies. Probably the market was hoping for a cut in interest rate, or just looking for an excuse to sell. 

Daily technical indicators are looking bearish. MACD is falling towards its signal line in negative zone. ROC has dropped sharply into its negative zone. RSI faced strong resistance from its 50% level, and is moving down. Slow stochastic dropped down after facing resistance from the edge of its overbought zone.

So, what can happen next? The index is likely to test its Jan 20 low of 7240. Will it bounce up with strong volumes? Seems unlikely, considering the way both FIIs and DIIs are selling.

What happens if the index falls below 7240? It will drop towards the 7120 level (which is the 50% Fibonacci retracement level of the entire rise of 3672 points from the Aug '13 closing low of 5285 to the Mar '15 top of 8957). 

Another possibility is that the index consolidates within a 300 points range between 7540 and 7240 till the budget on Feb 29.

Which of the three options will Nifty choose? Your guess is as good as mine. Just stick to your asset allocation plan and invest your monthly savings accordingly. 

The index is still trading above its rising 200 week EMA (not shown), which means the long-term bull market is intact.

Almost forgot to mention that the NSE TRIN - a market breadth indicator (not shown) - has ventured into extremely oversold region. A sharp technical bounce can occur at any time. 

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