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Wednesday, May 13, 2015

Nifty chart: a mid-week update (May 13 ‘15)

Poor performance of the Indian stock market during the past month, and the lack of clarity on retrospective MAT demands have sent short-term FII funds scurrying to other emerging markets. In a bid to control the damage, all MAT demands on FIIs have been put on hold.

As per provisional figures, FIIs were net sellers of equity worth Rs 1200 Crores during the first three days of this week. DIIs were net equity buyers worth Rs 1900 Crores. Nifty gained about 0.5% over its previous week’s close, but is struggling to remain above its 200 day EMA.

There was mixed news on the economic front. CPI inflation in Apr ‘15 was lower at 4.87% compared to 5.25% in Mar ‘15. However, the IIP number for Mar ‘15 dropped to 2.1%, compared with 4.8% in Feb ‘15 – indicating that industrial growth is yet to pick up. RBI may have no option but to reduce interest rates further.

Nifty_May1315

The 200 day EMA has stayed merged with the lower edge of the ‘support-resistance zone’ between 8180 and 8630 for almost 4 weeks. The daily bar chart pattern of Nifty shows a ding-dong battle between bulls and bears for control – with wide daily points swings.

The good news for bulls is today’s strong trading volumes, and a close near the day’s top after falling to a lower low. The bad news is the overhead resistance being provided by the falling 20 day EMA.

A cross above the May 5 intra-day high of 8356 will form a bullish pattern of ‘higher tops and higher bottoms’. But a more convincing upward move will be a close above the 50 day EMA (at about 8450).

A drop below the May 7 low of 7997 would mean a continuation of the bearish pattern of ‘lower tops and lower bottoms’. How much lower can the Nifty fall? A 5% correction from current levels will take the index down to the next support level of 7840.

Daily technical indicators have corrected oversold conditions but remain in bearish zones, and their upward momentum is weak. MACD has bounced up from the edge of its oversold zone, and trying to cross above its falling signal line. ROC has crossed above its 10 day MA, and looks ready to enter positive territory. RSI and Slow stochastic have moved up from their oversold zones, but are below their respective 50% levels.

Bears still have the advantage, but this doesn’t look like anything other than a technical correction in a bull market due to FIIs rotating their short-term emerging market investments. So, keep your SIPs going, and slowly accumulate fundamentally strong stocks – but don’t forget to maintain stop-losses.

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