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Wednesday, December 17, 2014

Nifty chart: a mid-week update (Dec 17 ‘14)

The sharp and continuous fall in the price of crude oil – though beneficial for India – has spooked FIIs big time. Plummeting oil demand is a sign of slow economic growth, particularly in Europe.

Eventually, it will hit shale oil production in USA, as extraction costs will become unremunerative. Some countries that are dependent on oil revenues – like Russia, Venezuela, Nigeria – can slip into recession.

During the first three trading days of this week, FIIs net sold a huge Rs 3300 Crores worth of equities. DII buying worth Rs 2100 Crores could not stop the slide in Nifty.

The WPI number was 0% – which means the wholesale price basket a year ago in the same month was at the same level. The stage is being set for an interest rate cut by RBI sooner than later. That should bring cheer to a market currently devoid of positive triggers.

Nifty_Dec1714

Nifty has dropped below its 20 day and 50 day EMAs into the support zone between 7840 and 8180 (corresponding to its Jul ‘14 and Sep ‘14 tops). Can the index fall more?

Yes, if the FIIs continue with their heavy selling. However, technically, 7840 should provide strong support because the blue ‘Up trend line 2’ (drawn through Aug ‘13 and Feb ‘14 lows) is currently just above 7840.

In case 7840 gets breached, the next support will be at 7600 – corresponding to the May ‘14 top and the current level of the 200 day EMA.

Daily technical indicators are looking oversold.  MACD has fallen rapidly below its signal line into negative territory. ROC is falling below its 10 day MA and is on the verge of entering its oversold zone. Both RSI and Slow stochastic have dropped inside their respective oversold zones.

A technical bounce can be expected at any time. Whether it causes an immediate resumption of the up move remains to be seen.

As long as the 200 day EMA keeps rising and Nifty trades above it, there should be no fears of a reversal of the bull market. The correction is providing an adding opportunity.

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