Weekly Outlook Of Nifty From 6th Aug - 10th Aug

Last week I had mentioned to go Long with a stop below 5011 for target of 5350 and positive momentum was seen ahead of RBIs monetary policy review. The Interest rates were left unchanged for the second time, which was in line of expectations. There was some momentary reaction and NIFTY index was pulled down by 80 points from the day’s high 5234 on that day but overall Index closed with a decent gain of 115 points on weekly basis. The index is consolidating within a large ‘symmetrical triangle’ pattern. Since the triangle has been tested twice on the upper side and twice on the lower side, a break out may happen soon. An upward break out should be supported by a significant increase in volumes.

All three EMAs are beginning to join together. A sharp move could follow. Will the index move upwards and break out above the triangle, or will it move downwards? Since Sensex is in a bear market, the move expected should be downwards. But it is better to wait for the actual move instead of guessing it.

Technical indicators are mildly bullish. The MACD is touching its signal line, and both are just inside positive territory. The ROC is barely positive, but above its 10 day MA. The RSI is slightly above its 50% level. The Slow stochastic has entered its overbought zone, but showing signs of turning down.

A weak monsoon is threatening drought-like conditions in many parts of the country. A drought will further dent the prospects of economic growth and lead to a spike in food inflation. The oil prices have started rising again putting further stress on India’s balance of payments problems. With exports slowing down noticeably, don’t expect depreciation of the Rupee to reverse direction any time soon.

The weekly chart of Nifty has been consolidating within a symmetrical triangle pattern since touching its Dec ‘11 low. Last week, the index closed above its 20 week and 50 week EMAs after three straight weeks of lower closes. But this week’s volumes were less than the previous down week’s volumes. A rally needs volume support, without which it may not sustain very long.

Weekly technical indicators are looking bullish. The MACD is above its signal line and just about positive. The ROC is rising above its 10 week MA in positive territory. The RSI is trying to move above its 50% level once again. The Slow stochastic has moved down from its overbought zone.

Conclusion: Chart patterns of Sensex and Nifty are consolidating within large symmetrical triangle patterns. Break outs may happen in either direction from such patterns. Derivatives build-up clearly suggests that NIFTY is restrained within a range of 5000 & 5400. From Technical point of view index is trading right in the middle of the Bollinger Band. It tested the lower support line near 5000 on expiry day of July series and now progressing towards the upper level of the Bollinger Band which is 5400. Key technical indicators such as MFI and Stochastic Oscillators are showing positive strength. Thus overall Market still looks positive and I still feel it is most likely and ready to test 5350-5402 level in coming weeks. On down side, 5000 is an extremely strong support zone. While those who missed to enter in lower levels are advised to concentrate on less risky investment opportunity.