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Wednesday, June 22, 2016

Nifty chart: a midweek update (Jun 22 '16)

Dr Rajan's decision to return to academia in Sept '16 without seeking a second term as RBI Governor was met with some trepidation by market players. FIIs were expected to rush towards the exit doors - which they were doing anyway due to BrExit concerns.

In a bid to stem the forex outflow, which was partly successful, the NDA government announced a slew of FDI reforms. Mere announcement may not be enough unless the underlying infrastructure is put in place and the tentacles of bureaucracy are removed.

FIIs and DIIs turned bulls and bears on alternate days this week. FIIs were net sellers of equity worth less than Rs 100 Crores, as per provisional figures. DIIs were net buyers of about Rs 750 Crores.

The following comments appeared in the previous mid-week Nifty update: "... 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 index has been consolidating sideways within a small 'symmetrical triangle' pattern for the past two weeks, with the rising 20 day EMA providing good downside support.

Triangle patterns tend to be unstable. A breakout can occur in either direction. Sometimes there is no breakout at all, as the price meanders along and moves sideways through the apex of the triangle.

It is better not to take new positions till a breakout occurs. All three EMAs are rising, and Nifty is trading above them in a bull market. So, the chances are better for an upward breakout.

Daily technical indicators are in bullish zones. However, MACD and RSI are showing downward momentum while Slow stochastic is showing upward momentum. Contrary signals are the norm during periods of sideways consolidation.

The breadth indicator, NSE TRIN, has started correcting overbought conditions but remains well inside its overbought zone. That means bears are not going to give up without a good fight.

BrExit concerns have led to cautious dealing in global markets. Till the referendum results are declared on Fri. Jun 24, expect the sideways consolidation to continue.

Stay invested, follow your asset allocation plan and wait for the event to play out.

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