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Wednesday, April 11, 2012

A mid-week Nifty chart update

The Nifty has lost nearly 100 points since last Wednesday’s close. Technically not too much change is visible on the 6 months bar chart pattern of the Nifty. The index is still consolidating within a ‘falling wedge’ pattern from which the likely break out is upwards. There are no certainties in technical analysis, so one needs to wait for the break out to occur before turning bullish.

Nifty_Apr1112

Note that the volumes have been falling during the formation of the wedge pattern. This is typical during periods of consolidation. Ever since it crossed above the 200 day EMA in end-Feb ‘12, the 50 day EMA has managed to remain above the long-term average – which is technically a bullish sign.

The technical indicators are not bullish. The MACD is below its signal line in negative territory. Both the RSI and the slow stochastic are below their 50% levels. Only the ROC is looking a bit bullish by climbing into the positive zone above its 10 day MA.

Despite bad news all around – Europe falling into a likely double-dip recession with Spain perched precariously on a financial precipice, US growth continuing to remain anaemic, the GAAR issue shaking the confidence of FIIs who have turned net sellers of late, another tsunami warning following a big earthquake off the western coast of Indonesia – the Nifty hasn’t fallen as sharply as it should have. That itself is good news!

If some good news hits the market at this stage, the Nifty may break out above the ‘falling wedge’. The likely triggers could be better than expected results from Infosys and TCS, and  a repo rate cut to go with a CRR cut by the RBI. But do not expect a runaway bull market. It could be more of a gradual grind upwards.

Downside risk hasn’t gone away. A drop below 5100 could be followed by a test of the Dec ‘11 low of 4500.

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