Sunday, November 6, 2016

BSE Sensex and NSE Nifty charts (Nov 04, 2016): correcting within bullish 'flag' patterns

During a holiday-shortened trading week, FIIs were net sellers of equity worth Rs 18.4 Billion - as per provisional figures. DIIs were net buyers of equity worth Rs 22.2 Billion.

Yet, both Sensex and Nifty closed about 2.3% lower for the week - at levels last seen four months back. So, who else sold? Must have been small investors like you and me!

The proposed (but not yet finalised) GST rate of 28% for consumer durables - like refrigerators, washing machines, airconditioners - may lead to a 2-3% increase in prices.

Foreign Direct Investments (FDI) into the country rose by 30% during the Apr-Sep '16 period - to US $21.6 Billion, against $16.6 Billion during Apr-Sep '15.

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex failed to overcome resistance from the upper down trend line of the 'flag' pattern on 'muhurat' trading day (Oct 30). 

The index closed below its 20 day and 50 day EMAs on Nov 1 and dropped below the support level of 27600 with a downward 'gap' the next day.

As bears tightened their grip, the index received brief support from 'Gap 1' (formed on July 11) on Nov 3, but dropped to completely fill the 'gap' by the end of the week.

Daily technical indicators are looking bearish. MACD, ROC and RSI are falling in bearish zones. Slow stochastic has dropped inside its oversold zone.

The index is approaching twin support from its 200 day EMA and the lower down trend line of the 'flag'. There may be a brief technical bounce.

For the past 2 months, bears have been using every rise to sell. Some more correction - below the 200 day EMA and a possible filling of 'Gap 2' (formed on Jun 30) - may be in the offing.

Note that upward 'gaps' filled during bull market corrections are usually followed by a resumption of the up move. 

Once the 'event risk' of the US Presidential election is over, expect FIIs to turn buyers again. In the event of a sudden sharp fall due to a global sell-off, don't be afraid to step up and buy.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty continued its correction within a 'flag' pattern for the 9th week in a row. In the process, it closed below its 20 week EMA and the long-term support level of 8500.

Any further correction is likely to receive stronger support from the 8300 level and the rising 50 week EMA.

Weekly 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, and hinting at some more correction.

Nifty's TTM P/E has eased a bit to 22.73, but remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) has emerged from its overbought zone, and climbing towards its neutral zone.

Outcome of the US Presidential election will be the near-term trigger for global stock markets. The latest polls show Clinton is ahead. An upset win by Trump can lead to a sell-off.

Bottomline? Sensex and Nifty charts are correcting within bullish 'flag' patterns, from which the eventual breakouts should be upwards. The corrections have improved valuations slightly, but earnings growth of India Inc. is still sluggish. Use the correction to accumulate slowly.

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