Wednesday, February 10, 2016

Nifty chart: a midweek update (Feb 10 '16)

Net selling in equities by FIIs this week has crossed Rs 1500 Crores. On Tue. Feb 9, DIIs joined the selling bandwagon, but they were net buyers on Mon. Feb 8. and Wed. Feb 10. Total DII net buying was Rs 300 Crores.

Falling oil prices, a poor IIP number from Germany, disappointing Q3 results from India Inc. have combined to scare away bulls.

India's GDP grew at 7.3% during Oct-Dec 2015, compared to 7.7% during Jul-Sep '15, but many economists are unable to correlate the numbers with the situation on the ground. 

The daily closing chart of Nifty 50 dropped to a new 52 weeks low of 7216 today. The 200 day EMA has formed a 'rounding top' reversal pattern. Daily technical indicators are in bearish zones and showing downward momentum.

All three EMAs are falling and Nifty is trading below them. On a closing basis, the index is 19.8% below its Mar '15 closing high of 8996. A 20% fall from a top is technically considered a confirmation of a bear market.

That may just be of academic interest. The way FIIs are selling, it seems no low is low enough!

There is one tiny sliver of silver lining on the looming dark bearish clouds. All three technical indicators touched higher bottoms while the index dropped lower. The positive divergences can lead to a technical bounce.

How low can Nifty fall? Let us look at a longer term weekly chart:

An important point to note is that Nifty is still trading above its 200 week EMA, which is currently at 7096. A convincing breach of the 200 week EMA will negate the long-term bull market.

Just above that is the 7120 level - which is the 50% Fibonacci retracement of the entire rise from the Aug '13 low to the Mar '15 top.

Bear phases often find support near the 50% Fibonacci retracement level - since most technical traders know about such levels.

Between 7020 and 7067 is an unfilled 'gap' that was created on the daily bar chart (on May 13 '14 - on euphoria about Modi-led NDA victory in the general election). Such gaps often provide support.

The 100 point zone between 7020 and 7120 may become a good support zone. Below that, support levels are at 6840, 6360 and 6160. Remember that support (and resistance) levels are approximate and rarely exact.

Weekly technical indicators are looking a bit oversold, which can lead to a technical bounce. Bears (i.e. FIIs) will probably use it to sell again.

The advantage is clearly with the bears.


Ramchandra said...


My heartfelt thanks to mid week update.

My portfolio is in far better position (just -5%) as compared to 2008. I still have a question in my mind, should we continue remain invested or take out some money out for a while. Nifty PE entering into 19 level, which is ok for investment and personally (I am not an expert) expecting Nifty PE to come down further up to 16-18 level.

I am admitting that my portfolio is purely consists of mid cap (with few exception) and I am taking out money wherever I see profit and searching for better opportunities (equity only) to invest for long time. I am still positive on long term and ready with cash in case market goes down further.

At last, I am skeptical about what to do if nifty breach 7092 level??


Subhankar said...

Thanks for your comments, Ramchandra.

India's economy is in far better shape than it was in Aug '13 when the previous sell-off happened. Market is looking oversold. Value buying can emerge at any time.

That doesn't mean Nifty can't fall lower. Pay less attention to Nifty levels, and more attention to individual stocks - particularly to those that have been declaring good results quarter after quarter.

You are not the only one with a portfolio full of mid-caps. An asset allocation plan helps in proper diversification of overall portfolio that protects the downside better.