Nifty touched a new 52 week high of 8711 on Aug 1 - gaining a huge 1885 points (~28%) from its Feb 29 low of 6826. It has been in corrective mode since then, closing just below the 8550 level.
Indian factory activity grew at its fastest pace in 4 months, as indicated by Nikkei/Markit Manufacturing PMI of 51.8 in Jul '16, against 51.7 in Jun '16. A figure above 50 indicates growth.
The daily bar chart pattern of Nifty received good support from its 20 day EMA, and is trading above its three rising EMAs in a bull market. That means corrective dips can be used to add/enter.
Daily technical indicators have corrected overbought conditions. MACD has crossed below its signal line and slipped down from its overbought zone. RSI and Slow stochastic are above their 50% levels, but showing strong downward momentum.
Nifty's TTM P/E is still quite high at 23.36. The breadth indicator NSE TRIN (not shown) has risen sharply from its overbought zone - hinting at some more correction.
If the index falls below its 20 day EMA, it can drop quickly to the support zone between 8300-8400. Can Nifty fall even lower? Sure it can, but a couple of technical reasons may prevent a fall below 8300.
The first is of course continued buying by FIIs on every dip. The second is a 54 points upward 'gap' between 8353-8407 formed on Jul 11. The 'gap' area can act as a support zone.
Even if the 'gap' gets partly or completely filled by price action, the index is likely to resume its up move thereafter. (Note what happened to the 55 points upward 'gap' between 7717-7772 formed on Apr 13.)
Remember that technical analysis is not a science, but based on similar price patterns that have occurred before on many technical charts. If FIIs suddenly turn sellers, all analysis can go haywire in a flood of outflow.
Such a situation is quite unlikely - unless a war breaks out in South China Sea (one has been brewing for a while). Not trying to be a scaremonger - just making readers aware that a wholistic view of the market is important in making investment decisions.
For a long-term investor, it shouldn't matter whether you buy when the index is at 8550 or 8350. When Nifty scales 10000 or 15000 (it will, if India's growth engine keeps chugging along), you will look back and think 8550 was a great buying opportunity.