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Wednesday, September 28, 2016

Nifty chart: a midweek technical update (Sep 28 '16)

FIIs were net sellers of equity on Mon. and Tue. while DIIs were net sellers of equity on Mon. and Wed. FIIs were net buyers on Wed. while DIIs were net buyers on Tue.

Total net selling of equities by FIIs was worth Rs 290 Crores. Total net selling by DIIs was worth Rs 90 Crores - as per provisional figures. The comparatively lower numbers are due to uncertainty during F&O expiry week.

In a sign of recovery, India's seafood exports for the Apr-Aug '16 period was higher by 7% on volume terms over the same period last year. In value terms, exports were higher by 17% - wiping out the entire loss of 2015.

In last week's post on the daily bar chart pattern of Nifty a couple of bearish scenarios and a bullish scenario were discussed. The balance appears to be tilting towards the bears.

The index has been consolidating sideways within a 'descending triangle' pattern since touching a 52 weeks high of 8969 on Sep 7. Such a triangle - when formed at a market top - can be a trend reversal pattern.

A 'descending triangle' has measuring implications. If the lower support level (8690) gets breached, the index can fall a distance equal to the height of the triangle (about 280 points).

That gives a downside target of about 8410 - which is the upper level of 'Runaway Gap3'. If the index does fall there, use the opportunity to buy.

The index has already touched the downward sloping trend line twice and the flat support level of 8690 twice. As per theory of triangles, a breakout can occur at any time.

Since triangle patterns are unreliable, it may be prudent to wait for the breakout. A convincing move above 8850 can negate the 'descending triangle'.

Things can change quickly on a price chart. Note that a small fall below the triangle and a subsequent quick recovery can turn the bearish 'descending triangle' into a bullish 'falling wedge' pattern. 

Daily technical indicators are giving mixed signals. MACD (in positive zone) and Slow stochastic (in oversold zone) are showing downward momentum. RSI is moving sideways in neutral zone.

Nifty's TTM P/E is still high at 23.97. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone and rising. Some more consolidation within the triangle and/or a breakout below it is possible.

Don't hit the panic button. But if you are sitting on good profits, take some of it off the table.

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