Nov 06 2017

Time to pray for Nifty bulls

Nifty has witnessed a relentless rise since late Dec16 – from a low of 7894 (26 Dec16) to the latest close of 8924 (8 Mar17) – superlative absolute returns of 13% in just about 2.5 months. Are Indian companies really doing so well?? Quarterly financial performance (Dec16) of Nifty companies were mediocre (moderate, at best). Foreign Institutional Investors have pumped in just $1.8 bn since start of this year. So, what is actually driving Indian equities?? Global equities rally – possibly yes. UP election results – possibly YEEESSSSSS!!!!! Such a rally certainly suggests that markets are pricing in a BJP elected government Great, good news priced in. What happens if there is a fractured verdict? Are the markets prepared for any other news?? TIME WILL TELL.

Enough of scenario analysis, what do the charts indicate?

A first look suggests a double top formation – current peaks around 8950-8990 were resisted in early Sept16 too. Remember, 8950-8990 was resisted in late Jan15 also. Nifty briefly broke above that resistance to touch an all time high of 9119 (4 Mar15); but swiftly retraced to witness a substantial decline in the subsequent months. So effectively, it is a long term triple top formation. What I am trying to suggest is the criticality of the long term resistance of 8950-8990 region.

There are visible up-gaps in the current Nifty rally (observe the green horizontal lines) – first gap at 8294-8322 (10/11 Jan17) and the second at 8784-8804 (16/17 Feb17). Momentum indicators are in the overbought territory and there are visible negative divergences on MACD and Slow Stochastics.
I feel Nifty has run too long a rally without any realistic correction. My sense is that Nifty could witness a decline to fill the price gaps – first target 8750-8800 and second target 8280-8330. If Nifty breaks above 9100 and forms a new all time high, my assessment will be rescinded and will indicate that something else is conspiring.