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Sunday, October 9, 2016

BSE Sensex and NSE Nifty charts (Oct 07, 2016): consolidating within bearish descending triangle patterns

FIIs were net buyers of equity on all five trading days, but their total buying was worth only Rs 1030 Crores. DIIs were net sellers on three days, but their net buying on Mon. and Fri. exceeded their net selling by Rs 280 Crores, as per provisional figures.

Both Sensex and Nifty gained about 1% on a weekly closing basis, but stopped short of testing resistance from their respective blue down trend lines. That increases the probability of both indices dropping below the descending triangle patterns within which they have been consolidating for the past six weeks.

The telecom spectrum auction was a bit of a disappointment. Though Rs 658 Billion was bid by 7 service providers, it was much less than the targetted Rs 5390 Billion. There were no takers for the expensive 700 and 900 MHz bands.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex has been consolidating sideways within a 'descending triangle' pattern for the past 6 weeks. Such a pattern, when formed at or near a market top, can be a trend reversal pattern.

A downward breach of a 'descending triangle' pattern has measuring implications. The downside target below the triangle is equal to the height of the triangle (which is about 1400 points). So, the index can fall to (27700 - 1400 =) 26300.

Support can be expected from 'Gap1' (formed on Jul 11), the rising 200 day EMA and 'Gap2' (formed on Jun 30). In other words, the index is likely to find buying support before it can fall to 26300. 

All four daily technical indicators are in bearish zones and showing downward momentum. Trading activities may remain low due to a couple of holidays this week (on Sep 11 & 12). Expect some more consolidation within the triangle before a downward break out can occur.

The long-term structure of the chart remains bullish, though bears seem to have the upper hand in the near term. Be patient, and use dips to buy.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty has formed a bearish 'descending triangle' pattern, from which the likely break out is downwards.

The height of the triangle is about 420 points. That gives a downward target of 420 points below the triangle - i.e. 8130. The 20 week and 50 week EMAs, and the long-term 'support-resistance' level of 8350 are likely to provide support on the way down.

Can the index bounce up and breach the blue down trend line? It is possible, but has a low probability in the near term. A more likely outcome is a fall below the triangle, followed by an upward bounce from 8350.

Three of the four weekly technical indicators - ROC, RSI, Slow stochastic - have corrected overbought conditions. MACD is in the process of doing so. Some more consolidation within the triangle is likely till a downward break out can occur.

Nifty's TTM P/E is still higher than its long-term average at 23.49. The market breadth indicator, NSE TRIN (not shown), is in neutral zone.

Q2 (Sep '16) results are being announced. That may provide the next trigger for the index to make a decisive move.

Bottomline? Both Sensex and Nifty charts are consolidating within bearish 'descending triangle' patterns. Some more correction will provide good buying opportunities. Be stock specific. Wait for Q2 (Sep '16) results before buying.

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