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Saturday, August 6, 2016

BSE Sensex and NSE Nifty charts (Aug 05, 2016): bulls fight off a bear attack

FIIs were net buyers of equity worth Rs 2800 Crores during the first trading week of Aug '16. DIIs were net sellers of equity worth Rs 1500 Crores, as per provisional figures, but were net buyers on Fri. Aug 5 - enabling both Sensex and Nifty to close with small weekly gains.

The expected passing of the GST constitutional amendment bill in the Rajya Sabha had already been discounted by the stock market. A lot of administrative steps are required after the Lok Sabha and at least 16 of the states ratify the bill, and a GST Council is set up. 

Analysts are falling over each other in trying to explain the likely effects of GST on various business sectors. Investors should wait for the GST Council to be set up and decide on the various slab rates. Despite all the publicity, there will not be a single GST rate, as luxury items may attract a higher rate and some items will be exempted or have lower rates.

BSE Sensex index chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Sensex"The index looks poised for a correction. FIIs may buy the dip and prevent a big fall." 

The index touched an 11 months high of 28285 on Aug 1, but formed a 'reversal day' bar (higher high, lower close) that triggered a correction down to the support level of 27600.

Combined buying by FIIs and DIIs on Fri. Aug 5 led to an upward bounce, with a small gain of 26 points on a weekly closing basis. The index has been consolidating sideways within a 650 points range for the past 4 weeks.

Daily technical indicators are turning bullish. MACD is below its signal line in positive zone, but has stopped falling. ROC has re-entered positive zone and crossed above its 10 day MA. RSI has crossed above its 50% level after a brief drop below it. Slow stochastic dropped close to the edge of its oversold zone, but is turning up.

The index needs to move above its Aug 1 top of 28285 to prevent the formation of a bearish 'head and shoulders' pattern. Any breach of the 27600 level can lead to a test of support from the rising 50 day EMA. 

Sensex is trading above its three EMAs in a bull market. If DIIs join the bull party - like they did on Fri. - resistance from the 28600 level will be overcome easily.

Remain cautiously optimistic, and stay invested. (Sensex P/E is at 20.8 - higher than the long-term average value.)

NSE Nifty index chart pattern

The following comments appeared in last week's post on the weekly bar chart pattern of Nifty: "All four weekly technical indicators are looking overbought. That doesn't mean Nifty can't move even higher."

The index touched a new high of 8711, only to drop below the 'rising wedge' pattern to a low of 8518, but bounced up to close above the resistance level of 8650 with a weekly gain of 0.5%.

Nifty has closed within the bearish 'rising wedge' pattern for 11 weeks in a row. Only a convincing move above the upper edge of the wedge will negate the pattern.

Three of the weekly technical indicators - MACD, RSI, Slow stochastic - are rising inside their overbought zones. However, ROC has corrected down from the edge of its overbought zone and crossed below its 10 week MA.

Nifty's TTM P/E is at 23.74 - much higher than its long-term average value. The index touched a new 52 week closing high, but was backed by lower volumes. Downside risk is increasing by the week.

Stay invested, but maintain a trailing stop-loss.

Bottomline? Sensex and Nifty charts show that bulls are refusing to allow bears to dominate. Index valuations on a TTM basis continue to look expensive, increasing downside risk. A dovish RBI policy announcement next week may trigger a rally to test lifetime highs.


Subhankar said...

Centre keen to press ahead, set up GST Council by September-end

Subhankar said...

GST's a great idea. But making it work is not going to be easy