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Wednesday, July 2, 2014

Nifty chart: a mid-week update (Jul 02 ‘14)

Has Nifty started a pre-budget rally? Or, is it a ‘hope’ rally that the budget will have positive measures for the market? Or, is it just a technical break out from a bullish ‘flag’ consolidation pattern? Or, is it ‘all of the above’?

Economic fundamentals haven’t really improved. Improvement does not come automatically with a change in government. Only policy changes and their quick implementation can change things after some time.

So, why did the Nifty touch a new life time high today? Good question. Perhaps the FM’s recent statements were taken positively by bulls. May be Pakistan’s military action against terrorist hideouts in the lawless north-west frontier provinces will finally bring some peace in the region.

Nifty_Jul0214

Investors love to hear a ‘reason’ why a stock index is rising or falling. Experts try to satisfy their curiosities by giving any plausible reason that comes to mind. (Oh! I forgot about the Iraqi army chasing the ISIS militants away from Tikrit – or, at least trying to do so.)

The bottom line is: a trend remains in force till it gets reversed. An up trend had started from the Dec ‘11 low – more than two and a half years ago. That up trend is still in force. During an up trend you expect to see new highs.

Can the Nifty go much higher? Sure it can, and probably will. Unless you have invested in Nifty BeES or an index fund, it really should not matter where the index level is. Have you picked the right stocks that can help you ride the bull rally? Do you know when and how much profit to book? Those are the important questions to answer.

Daily technical indicators have turned bullish.MACD is about to cross above its falling signal line in positive territory. ROC has crossed above its 10 day MA into positive zone. RSI has moved above its 50% level. Slow stochastic has climbed to the edge of its overbought zone.

Should bulls start their celebrations? Guess not. None of the business channel anchors kissed their laptops today. All four technical indicators are showing negative divergences by failing to touch new highs with the index. The break out from the ‘flag’ pattern saw rising, but not significantly higher, volumes.

Nifty may again start to consolidate a bit till budget proposals are announced next week.

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