Wednesday, March 2, 2016

Nifty chart: a midweek update (Mar 02 '16)

During Feb '16, FIIs were net sellers of equity worth Rs 12500 Crores. DIIs were net buyers of equity worth Rs 10500 Crores. Nifty touched a new 52 week low of 6826 on the last day of the month and closed with a 7.6% loss for the month.

Budget proposals did not appear to be market-friendly despite only a token 0.5% increase in Service tax, and a less-then-expected increase in excise duty on cigarettes. Corporate tax was not reduced. The tax on EPF withdrawal came as a major shock to the salaried class. 

Just when everyone expected the index to collapse, Nifty did the unexpected and jumped 550 points from its Feb 29 low. What happened? Have a look at the chart and analysis below to find out.

The following comments from last Sunday's post on Sensex and Nifty charts may be worth repeating:

"The door remains open for bears to push the index down to a new 52 week low, if the budget doesn't contain any market-friendly proposals."

"...if 6869 gets breached after the budget announcements, Nifty is likely to find strong support in the zone between 6647 and 6869."

"There are very little expectations from the budget on Feb 29 - which may turn out to be a contraindicator for a market rally."

The daily bar chart pattern of Nifty 50 did touch a new 52 week intra-day low on budget day, found support at 6826 and then rallied strongly. After crossing above its 20 day EMA on Mar 1 '16, the index faced resistance from the long-term support/resistance level of 7240.

That resistance was easily overcome with an upward 'gap' with good volume support today. The resistance level is likely to turn into a support level once more. The falling 50 day EMA is now providing resistance.

Is the worst over for the index? It would appear so from FII activity. They were net buyers of equity worth a huge Rs 4350 Crores on Mar 1 & 2. DIIs turned net sellers of equity worth Rs 1430 Crores, as per provisional figures. FIIs were reassured by the FM's decision of sticking to the fiscal deficit target of 3.5% of GDP.

Note that all three daily technical indicators touched higher bottoms while Nifty dropped to a new low (marked by blue arrows). The combined positive divergences was a technical trigger for the rally. 

On the daily closing chart (not shown), Nifty has formed a 'double bottom' reversal pattern, and should continue to rally. 

There is also a possibility that Nifty faces resistance from the next 'support/resistance' level of 7540, pulls back towards 7240, and then resumes its uptrend. That will provide a good buying opportunity.

In case 7240 gets breached again, Nifty may test its Feb 29 low - but such a possibility appears slim, and can only be triggered by some cataclysmic global event.

After a long time, shorts have been squeezed out. Time to start activating your 'buy list'.

Not quite 'acche din' yet - but getting there.