Weekly Outlook of Nifty from Sept 10th - Sept 14th

Last week it was mentioned that The weekly chart of the Nifty shows a classic break out from a symmetrical triangle pattern, followed by a pullback to the top of the triangle. The index is expected to bounce up from the top of the triangle near 5246. Even if it slips down inside the triangle, strong support is expected from the 20 week and 50 week EMAs and the uptrend line connecting the Jun and Jul ‘12 bottoms near 5200. The zone between 5200 and 5250 should prevent a deeper correction in the Nifty. It was also mentioned that zone 17157-17300 should provide a strong support to any further fall, one also did see a fight between Bulls and Bears as Index approached this level. Bears managed to pull the Index down exactly near the trend line support at 5200 but Bulls came back very strongly to an extent that on Friday NIFTY index opened with a big gap of 70 points and closed the week near the highest point of the day at 5342. Technically a sharp pull back from the critical support with “Bullish Marubozu” candlestick formation confirms the victory for Bulls. 

The index touched a weekly low of 17251, near the support zone as mentioned and bounced up strongly. The index dropped below and received good support from the trend-line of Jun ’12 and July’12 and also the entangled 20 week and 50 week EMAs.

The MACD is positive and above its signal line. The RSI has entered its overbought zone. The Slow stochastic has been inside its overbought zone for the past 4 weeks. The ROC is getting feeble for upward momentum by touching a lower bottom and crossing below its 10 week MA. The ‘golden cross’ which will technically confirm a bull market is still awaited. Do not expect a runaway rally, but the Indian economy is showing signs of bottoming out and that is definitely good news for the stock market.

The Nifty index dropped below its 50 day EMA to an intra-day low of 5216 during the past week just short of the 200 day EMA and the 5200 level before bouncing up with a gap-up on Fri. The strong support zone between 5200 and 5250 is held, and the uptrend from the Jun ‘12 low is intact.

Conclusion: Chart patterns of Sensex and Nifty have bounced back from strong support zones providing buying opportunities. Technical chart confirms that Index has taken a support from the significant level of 5200. This means NIFTY index is once again getting ready to give a breakout above 5450. Derivatives data suggests that Options Writers are unwinding their position from 5400 & 5500 strike price call options. So, above 5450 the next target for NIFTY index is around 5630 level. Those who booked their profits earlier at higher levels can again start accumulating on every dips for a target of 5630. Even though RBI has not cut interest rates Bank FD rates are being lowered. This shows adequate liquidity in the system. FIIs are still in buying mode despite the lack of policy reforms. This isn’t a time for pessimism.