Thursday, February 23, 2012

NIFTY closes below 8 day EMA.First time since 3 Jan 2012

Updated chart below,as on 23 Mar 2012.

NIFTY closes below 8 day EMA.First time since 3 Jan 2012. 
Current NIFTY @5483 vs 8 day EMA of 5491.
i.e NIFTY sustained above 8 day EMA ( exponential moving average) from 3 Jan 2012 to 22 Feb 2012.i.e last lasted 50 calendar days
So did a small study to see what happens next after such a long lasting uptrend? i.e look for any mean reversion.
Based on this small sample of NIFTY performance since past 1 year, it seems that NIFTY can correct up to~10%. Details below.

Please note this is not an exhaustive study for say last 5 or 10 years.I`ve just looked at NIFTY in past 1 year and found just 2 other similar rallies. But both these did last as long as the current one - in terms of both the magnitude of rally and calendar days.
Based on this very small sample , can we expect NIFTY to correct ~10% ? This would give target of of 5050 which is below 200 DMA of 5180.
( But we also need to look at other macro technicals. And most of them are bullish. All global stock indices and major commodities ( oil, copper) are above their 50 and 200 DMA `s. EURUSD also at new 3 month highs @ 1.334.Two slight bearish indicators are (1)  AUDUSD @ 1.607 which is below 20 DMA, first time since 20 Dec 2011.(2)the +25% to +31% rally of most stock markets and near Apr 2011 / July 2011 highs )
All Summary in below chart ( click to zoom)

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