Sunday, October 30, 2016

BSE Sensex and NSE Nifty charts (Oct 28, 2016): consolidating within bullish 'flag' patterns

For the first time since Feb '16, FIIs have been net sellers during a month. Till Oct 28, their net selling in equities exceeded Rs 56.6 Billion, as per provisional figures. DIIs turned net buyers of equity worth Rs 78.9 Billion.

During the week, FIIs were net sellers of equity worth Rs 36.3 Billion while DIIs were net buyers of equity worth Rs 36.9 Billion. However, both Sensex and Nifty closed around 0.5% lower for the week.

For Samvat 2072 (Diwali 2015 to Diwali 2016), Sensex has gained more than 2000 points (~8%) while Nifty has gained more than 800 points (~10.5%). Samvat 2073 will begin with a traditional 'muhurat' trading session between 6:15 pm and 7:30 pm today.

Three senior executives of Tata Sons have resigned - exacerbating corporate governance woes of Tata Group that has cast a pall of gloom on the stock market.

BSE Sensex index chart pattern


The daily bar chart pattern of Sensex made a couple of futile attempts on Mon. and Tue. to breakout above the 'flag' pattern, within which it has been correcting for almost two months.

The index dropped below its entangled 20 day and 50 day EMAs and remained below them for the rest of the week. The support level of 27600 provided good support.

Can the index correct some more? The possibility can't be ruled out. But there are a number of downside supports - viz. 'Gap1' formed on Jul 11, the rising 200 day EMA, 'Gap2' formed on Jun 30 - which should deter the index from a big fall.

All four daily technical indicators are at or near their neutral zones, and not showing much upward momentum. However, ROC's 10 day MA has formed a 'rounding bottom' pattern and both RSI and Slow stochastic have formed 'double bottom' reversal patterns inside their oversold zones.

These are bullish signs that can trigger an upward breakout from the 'flag'. It is also possible that the index may continue to consolidate and form a 'rounding bottom' pattern - in which case a new high may be two months down the road.

There is no choice but to wait for the current phase of consolidation/correction to play out. The long-term structure of the chart remains bullish. Buy wherever you can find value, but do so gradually.

NSE Nifty index chart pattern


The weekly bar chart pattern of Nifty broke out above the downward-sloping channel (also called a 'flag') intra-week but slipped down to its 20 week EMA inside the channel as there wasn't enough buying support.

The index bounced up and closed just below the 'support-resistance' level of 8650, and remained within the 'flag' pattern for the 8th week in a row.

Weekly technical indicators are looking bearish. MACD has crossed below its signal line and dropped from its overbought zone. ROC is below its 10 week MA and moving sideways in neutral zone. RSI is falling towards its 50% level. Slow stochastic has dropped below its 50% level.

Nifty's TTM P/E remains high at 23.34. The breadth indicator NSE TRIN (not shown) is falling deeper inside its overbought zone. Some more correction within the channel is possible.

FIIs appear concerned about an impending interest rate hike by the US Fed and recession fears due to BrExit. They may remain sellers and keep the index under downward pressure till the concerns are alleviated.

Bottomline? Sensex and Nifty charts are consolidating within bullish 'flag' patterns, from which the eventual breakouts should be upwards. The corrections have somewhat improved valuations. Buy gradually.

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