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Wednesday, March 9, 2016

Nifty chart: a midweek update (Mar 09 '16)

After Monday's holiday, FIIs continued their buying in equities. Their net buying crossed Rs 1200 Crores on Tuesday and Wednesday, as per provisional figures. In a reversal of roles, DIIs have turned bears. Their net selling exceeded Rs 2150 Crores.

The salaried middle-class heaved a sigh of relief as the Finance Minister withdrew his budget proposal of taxing 60% of EPF savings made after Apr. 1, 2016. The Finance Bill will need to be amended accordingly.

Oil's price has been rising on speculation that major producers may agree to a cut in production. Meanwhile, Vijay Mallya has flown the coop as banks tried to pressurise him to honour his personal guarantees against huge loans taken by the now-defunct Kingfisher Airlines.

After touching a 52 week intra-day low of 6826 on Feb 29 '16, Nifty rallied sharply above its 20 day EMA, the 'support/resistance' level of 7240 and its 50 day EMA - gaining more than 700 points (10.3%).

All three daily technical indicators touched higher bottoms (marked by blue arrows) while the index dropped lower. The combined positive divergences had provided a technical trigger for the rally.

The possibility of the index facing resistance from the next 'support/resistance' level of 7540 was mentioned in last week's update.

What will Nifty do next? In the past 2 days, DII selling has exceeded FII buying. Slow stochastic is well inside its overbought zone. The TRIN market breadth indicator (not shown) has entered its overbought zone for the first time since the third week of Dec '16. 

A correction towards 7240 may be just around the corner. The dip will be a good buying opportunity.

Some experts are suggesting that the index may fall below 7240 and test its Feb 29 low. That seems unlikely - unless there is a sudden global sell-off for some reason.

A third possibility is Nifty overcoming the resistance from the 7540 level and moving up to 7700, which is the next 'support/resistance' zone.

Can the index move even higher? Sure it can. But there is a limit to how far short-covering can propel this rally.

Eventually, fundamentals need to be conducive for the bull market to resume in earnest - such as, an interest rate cut by RBI in Apr '16 and better Q4 results from India Inc.

Till then, use every opportunity to get rid of any dud stocks from your portfolio, and switch to fundamentally stronger ones.

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