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Wednesday, June 15, 2016

Nifty chart: a midweek update (Jun 15 '16)

Inflation has started to move up again. CPI inflation for May '16 was 5.76% against 5.01% in May '15 and 5.47% in Apr '16. WPI inflation was 0.79% in May '16 - its highest level since Oct '14 - against -2.2% in May '15 and 0.34% in Apr '16. Rising food price was the main culprit.

FIIs were net buyers of equity on Mon. Jun 13, but turned net sellers on the next two days. DIIs were net sellers of equity on Mon. & Tue., but turned net buyers today. The total net selling by FIIs and DIIs was worth Rs 400 Crores.

Global uncertainties and rising domestic inflation failed to deter bulls. Nifty corrected less than 3% from its Jun 7 top of 8295, and bounced up nearly 100 points today. 


The daily closing chart pattern of Nifty ended 4 days of correction after receiving strong support from the 8100 level and its 20 day EMA. All three EMAs are rising, and the index is trading above them in a bull market.

In last week's update, it was suggested that a correction or consolidation was likely and investors would do well to buy the dip and not wait for a deeper correction.

When bulls are regaining control of the chart after a long down trend, the index tends to ignore bad news and logic. The smart thing to do is to follow the trend - as long as valuations remain reasonable.

The periodic corrections during the rally from the Feb '16 low has kept the chart technically 'healthy'. Bulls are buying the dips and propelling the index higher.

Daily technical indicators have corrected overbought conditions, but remain in bullish zones. MACD has crossed below its signal line, but its downward momentum is reducing. RSI has turned up before reaching its 50% level. Slow stochastic is falling towards its 50% level.

However, the breadth indicator NSE TRIN (not shown) has dropped deeper into its overbought zone. Some more correction or consolidation around current levels is possible.

The US Fed is unlikely to increase interest rates anytime soon, as growth of the US economy is quite low. 'Brexit' fears have been overdone - just like 'Grexit' fears a few months back. 

FIIs will soon realise that valuations are never cheap when a large economy is on a growth trajectory. May be they are just waiting for the onset of monsoon across India to renew their buying.

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