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Wednesday, May 4, 2016

Nifty chart: a midweek update (May 04 '16)

India's manufacturing PMI dropped to 50.5 in April against 52.4 in March, but showed the 4th straight month of growth (as the number was above 50). 

Sales of cars, vans and UVs grew 12% in April on a YoY basis. Maruti, Hyundai, M&M, Tata Motors, Renault, Ford showed growth in sales, thanks to launch of new models. Toyota, Honda, Volkswagen, Nissan showed decline in sales.

Data released by the commerce ministry showed the eight core industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — had a cumulative growth of 2.7% in FY 2015-16. However, this was lower than 4.5% for FY 2014-15.

During the first three trading days of the month, FIIs were net sellers of equity worth around Rs 400 Crores; DIIs were net buyers of equity worth about Rs 300 Crores, as per provisional figures.

The daily bar chart pattern of Nifty had faced resistance from the 8000 level on Apr 28, formed a large 'reversal day' bar (higher high, lower close), and started correcting.

The index dropped below its 200 day EMA into bear territory - completely filling the upward 'gap' between 7717 and 7772 formed on Apr 13 '16. Bears may attempt to take the index even lower. But bulls can fight back at any time.

Daily technical indicators are looking bearish. MACD formed a large 'double top' reversal pattern inside its overbought zone, and started to fall in positive zone. Slow stochastic formed a smaller 'double top' reversal pattern inside its overbought zone and dropped below its 50% level. RSI faced resistance from the edge of its overbought zone, and has slipped below its 50% level.

Some more correction is likely. Expect the rising 50 day EMA to provide some downside support - as it had done in the past two months.

On longer term weekly chart (not shown), Nifty has dropped below its 50 week EMA, and is seeking support from its 20 week EMA. The index is trading 550 points above its 200 week EMA in a long-term bull market. The correction is providing an adding opportunity.

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