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Wednesday, May 18, 2016

Nifty chart: a midweek update (May 18 '16)

FIIs were net sellers of equity worth Rs 550 Crores during the first three days of this week. DIIs were net buyers of equity worth Rs 500 Crores, as per provisional figures.

After 17 straight months of contraction, WPI inflation moved up to 0.34% in Apr '16, compared with -0.85% in Mar '16 and -2.43% in Apr '15. Higher prices of potato, pulses and sugar contributed to the rise.

With CPI inflation moving above the 5% mark, RBI is unlikely to tinker with interest rates during its policy meeting in Jun '16. That leaves the onset of monsoon as the only upward trigger for the index, as better Q4 (Mar '16) results have barely moved the market.

The daily bar chart pattern of Nifty shows bulls and bears are locked in a tussle for supremacy with neither side ready to concede defeat. Bulls are buying intra-day dips. Bears are selling intra-day rises - leading to increased volatility.

The scale appears to be gradually tilting towards bulls. The 200 day EMA provided good support on Mon. May 16 - even though FIIs and DIIs were both net sellers of equity.

On Tue. May 17, the index rose to test the 7950 level intra-day, but dropped to close below the 7900 level - forming a bearish 'shooting star' candlestick pattern that may end the rally from the May 6 low.

Today was expected to be a down day, but the index found support from its rising 20 day EMA and closed above the 7850 level.

Nifty is trading above its three EMAs in bull territory. However, the 'golden cross' of the 50 day EMA above the 200 day EMA that will technically confirm a return to a bull market is still awaited.

The index seems to be consolidating sideways within a 'symmetrical triangle' pattern since forming a 'reversal day' bar on Apr 28. Triangles are unreliable, since the eventual breakout can occur in either direction.

A triangle formed during the middle of a bull rally often turns out to be a 'continuation' pattern. So, there is a better chance of an upward breakout. That should take Nifty well past the 8000 level.

A downward breakout - should it occur - may drop the index to the zone between 7500-7600.

Daily technical indicators are in bullish zones. MACD and RSI are moving sideways. Slow stochastic is showing a bit of upward momentum.

Results of several state elections will be declared on May 19, and can provide some boost to bullish sentiments if the post-poll surveys turn out to be correct.  

Stay cautiously optimistic, and stick to your financial and asset allocation plans.

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