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Wednesday, July 13, 2016

Nifty chart: a midweek update (Jul 13 '16)

There was good and bad news on the economic front. First, the good. IIP number for May '16  was 1.2% against -0.8% for Apr '16. It was only the second month of industrial growth during the past 6 months.

However, CPI inflation for Jun '16 was slightly higher at 5.77% against 5.76% in May '16. CPI may inch upwards till Aug '16 - reducing the probability of further interest rate cuts by RBI.

As per provisional figures, FIIs have been net buyers of equity worth Rs 1550 Crores this week. DIIs have been net sellers of equity worth Rs 1150 Crores.

The daily bar chart pattern of Nifty opened the week with an upward 'gap' after last week's corrective move, and rallied to touch an intra-day high of 8550 today - a level last touched 11 months ago.

However, the index formed a small 'reversal day' pattern (higher high, lower close) that can lead to some correction or consolidation.

All three EMAs are rising and the index is trading above them in a bull market. But all four technical indicators are looking overbought.

An index can remain overbought for long periods during a bull rally. So, continue with your SIPs but if you want to make big lump sum bets, do so only on dips.

The breadth indicator, NSE TRIN (not shown) is again in extreme overbought zone. Bears may pour cold water on bullish excitement.

Don't be surprised if there is a sudden 200 points correction during the next couple of days. FIIs will probably use the opportunity to buy.

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