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Wednesday, September 10, 2014

Nifty chart: a mid-week update (Sep 10 ‘14)

In a post 4 months back – even before the general election results were announced – the 47 points ‘gap’ formed on the Nifty chart on May 13 ‘14 was identified and analysed as a ‘measuring gap’ that gave a Nifty target of 8155.

By closing at a new lifetime high of 8173.90 on Mon. Sep 8 ‘14, the intermediate Nifty target was achieved. Why intermediate? Because bull market targets are often exceeded. So, is the index ready to move much higher?

The answer is: Yes. But there are some bearish signs visible on the daily bar chart pattern of Nifty (below) that may temporarily press the pause button on the bull rally.

Nifty_Sep1014

These bearish signs are:

1. Higher volumes on down days during the past few trading sessions. Today, both FIIs and DIIs were net sellers in equities.

2. All four technical indicators failed to touch higher tops when Nifty touched new lifetime intra-day and closing highs on Mon. Sep 8. The combined negative divergences can cause some more correction.

3. Daily technical indicators are in bullish zones but beginning to show downward momentum. MACD is positive, but sliding down towards its rising signal line. ROC is also positive, but has slipped below its 10 day MA. RSI is about to drop down from its overbought zone after nearly 2 weeks. Slow stochastic is inside its overbought zone, but gradually sliding down.

4. The index is trading more than 1000 points above its 200 day EMA. Some more correction will improve the technical ‘health’ of the Nifty chart.

Note that the index is trading above all its three EMAs in a long-term bull market. So, no need to panic. Any correction will be an opportunity to add. Or, if you have invested at much lower levels, just hold on to your portfolio for the next leg of the up move.

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