Just when the Greek debt tragedy appeared to be fading out from TV headlines, a Chinese typhoon blew over global stock markets and smashed down share prices.
A Chinese stock market bubble was building for some time due to excessive leveraged speculation. The Shanghai Composite was in a downward trajectory any way, so why the sudden panic?
Expected slowdown in the Chinese economy led to a crash in global commodity prices that had a cascading effect on all markets. FIIs turned net sellers of equity today after 5 straight sessions of net buying.
The daily bar chart pattern of Nifty crossed above the blue down trend line and headed towards the upper edge of the ‘support-resistance zone’ between 8180 and 8630 - after taking the Greek referendum’s ‘No’ vote in stride.
But the index formed a small ‘reversal day’ pattern (higher high, lower close) on Tues. Jul 7, followed by a ‘gap down’ day today that dropped the index to seek support from its 20 day and 50 day EMAs and the blue down trend line.
The break out above the down trend line last week was not accompanied by a significant increase in volumes. That had opened up the possibility of a pullback towards the down trend line.
The Greek and Chinese turmoil provided bears with just the right opportunity to assert themselves.
Overbought conditions visible on technical indicators was another warning of a consolidation or correction. Some more correction, and a drop below the trend line, may be on the cards but bulls can be expected to fight back soon.
The index is trading above its rising 200 day EMA in a bull market. That means pullbacks and dips are adding opportunities.
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