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Charts & Analysis

Nifty Short Term: Still Some Way To Go?

With a rise this spectacular, what’s in store for us? First, let’s look at my proprietary Net Stocks Above MAs indicator.

Net stocks above moving averages

This involves getting the number of Nifty stocks above or below their 5 and 20 DMAs and subtracting the number of those above, from the number of those below. To smooth the series, I’ve used a short term average of the resulting numbers as well.

The series is reasonably helpful in identifying major bottoms, as it reverses direction. Yet, it’s not exact – the indicators turn either before or after the market turns, mostly a little bit after.

Both the 20 and 5 DMA lines are sloped up and a reversal is likely only when they move down.

Other trading indicators would involve a long term Fibo retracement from the lows.

Fibo retracement

We are at the retracement level of 61.8%, which might mean traders take a little off the table. Note that the next trendline resistance is around the 5450 point, another 2% up from here. This coincides with the 200 Day Moving Average which has been a resistance earlier.

Finally, there’s an interesting Gap below:Nifty GAP

If we go back into the gap, I would then expect the gap to be closed, that means a support level of 5200. This can take months to happen, don’t salivate just yet.

From a trading perspective the index looks set for a minor upmove, and then a consolidation as a step down.

Consider that news might only be positive – the Fed won’t raise rates, the ECB might actually cut rates, and the US indicators will only improve. The bad news pieces are unexpected but on the cards:

  • European banks realize how bad their situation is with the Greek default and demand capital, meaning big dilutions.
  • Indian stocks continue to feel the onslaught of higher rates and there are news of large defaults (Watch Kingfisher, Watch the realty pack, watch infrastructure)
  • Bad earnings from some of the top level Nifty stocks.

Stay nimble. It may not be useful to be short unless you have guts of steel; bear market rallies are very very sharp.