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Saturday, August 27, 2016

BSE Sensex and NSE Nifty charts (Aug 26, 2016): bears wrest advantage

FIIs turned net sellers of equity worth Rs 370 Crores during the week, possibly on concerns about a possible interest rate hike by the US Fed. However, they were net buyers of equity worth Rs 340 Crores on Fri. Aug 26.

DIIs were also net sellers of equity worth Rs 900 Crores, as per provisional figures, but were net buyers on Mon. Aug 22 and Wed. Aug 24. Both Sensex and Nifty lost 1% on a weekly closing basis.

FIIs can be expected to remain sellers next week as the US Fed hinted at a likely interest rate hike without specifying when.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex continued its sideways consolidation within the 'support-resistance zone' between 27600 and 28600 for the 7th week.

The index is forming a bearish 'rounding top' pattern that will get technically confirmed on a drop below 27600. The 50 day EMA is just below the 'support-resistance zone' and can provide some support.

Stronger support can be provided by the two 'gaps' (marked Gap1 and Gap2) that formed on the chart on Jul 11 '16 and Jun 30 '16. In between the two 'gaps' is the support level of 27100. 

Even if either or both 'gaps' get filled, the index should resume its up move thereafter. There is a possibility that the index will only fill Gap1 and then bounce up from the 27100 level.

All four daily technical indicators are looking bearish and showing downward momentum. MACD is falling below its signal line in bullish zone. ROC, RSI and Slow stochastic are falling in bearish zones.

The correction can continue - at least in the earlier part of next week - before the index finds some buying support. No need to fear a 2008-style crash.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty dropped below the 8650 level and closed lower for the third week in a row - forming a bearish 'rounding top' pattern in the process.

The 'rounding top' will get technically confirmed if the index falls below 8500 - in which case, support can be expected from the 8300-8400 zone.

Weekly technical indicators are in their overbought zones, but showing some signs of correcting down.

Nifty's TTM P/E is still high at 23.50. The breadth indicator NSE TRIN (not shown) is moving sideways inside its overbought zone.

Some more correction is likely - but a deep correction is not expected.

Bottomline? Sensex and Nifty charts show that bears have wrested some advantage. Index valuations on a TTM basis remain expensive. Some more correction will improve the technical 'health' of the charts, and provide adding opportunities.

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