Sunday, November 13, 2016

BSE Sensex and NSE Nifty charts (Nov 11, 2016): turning bearish after 'flag' patterns get breached on the downside

In a full week of trading, FIIs were net sellers of equity worth Rs 39 Billion, as per provisional figures. DIIs couldn't quite match them, as their net buying in equities totalled Rs 29 Billion.

Sensex lost 1.4% while Nifty lost 1.6% on a weekly closing basis. More ominously for bulls, both indices - looking shell-shocked after the demonetisation of Rs 500 and Rs 1000 bank notes - closed below the 'flag' patterns within which they were correcting since the beginning of Sep '16.

Things are slowly improving on the macroeconomic front. The IIP number rose to 0.7% in Sep '16 against a revised -0.99% in Aug '16 and FDI in the country rose to US $5.15 Billion in Sep '16 against US $2.9 Billion in Sep '15.

Modi's 'Make in India' campaign seems to be working for a few second-rung auto companies. During Apr-Sep '16 period, exports exceeded domestic sales by significant amounts for Ford's Ecosport (1.5x), VW's Vento (6x), GM's Chevy Beat (6x), Nissan Micra (10x).

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex closed higher on the first two day's of the week on the back of FII buying. Note the following comments made in last week's post: "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."

It was also mentioned that bears may sell the rise and Sensex may fall below its 200 day EMA and fill 'Gap 2' formed on Jun 30. 

But Trump's unexpected victory in the US Presidential elections and Modi's announcement of demonetising of Rs 500 and Rs 1000 bank notes came out of the blue and caused a crash all the way down to the 25900 level during opening trade on Wed. Nov 9.

The index regained most of its losses during the day and closed within the 'flag' pattern. On Thu., it climbed above the 27600 level intra-day, but faced strong resistance from its falling 20 day EMA and closed below 27600.

Heavy selling by FIIs on Fri. Nov 11 triggered a drop below the 200 day EMA and the lower edge of the 'flag'. The index closed the week below the 'flag' and inside 'Gap 2'.

Daily technical indicators are looking bearish. MACD is falling towards its oversold zone. ROC and RSI are inside their respective oversold zones. Slow stochastic rose above its 50% level but its upward momentum has stalled.

Some more correction and/or consolidation is likely. An intra-day fall below the 'flag' on Wed. and a close below the 'flag' on Fri. are signs that the bullish 'flag' may get negated. 

Note that a single day's close within the 3% 'whipsaw' limit below the 'flag' has not yet negated the 'flag' technically.

Bulls will hope that the index can bounce up from 'Gap 2'. Their hopes may be belied. With the value of the Rupee falling against a strong US Dollar after Trump's win, FIIs are unlikely to start buying anytime soon. 

Small investors should not be in a hurry to start bottom fishing. A test of Wednesday's low of 25900 can't be ruled out.

NSE Nifty index chart pattern

Note the following comment made in Wednesday's post on the daily bar chart pattern of Nifty: "...the intra-day breach (of the 'flag') is a warning sign for bulls that the correction from the Sep '16 top may not be over yet."

The weekly bar chart pattern shows Wednesday's crash to the 8000 level, followed by a sharp recovery that failed to close inside the 'flag'. 

Bulls need not throw in the towel yet. Nifty is receiving twin support from its rising 50 week EMA and the 8300 level. Also, the index has closed within the 3% 'whipsaw' limit below the 'flag'.

Weekly technical indicators are looking bearish. MACD is falling below its signal line in positive zone. ROC, RSI, Slow stochastic are about to enter their respective oversold zones. Some more correction or consolidation around current levels is likely. 

Bottomline? Sensex and Nifty charts have closed below 'flag' patterns, showing bear domination. Valuations have improved a bit, but earnings growth of India Inc. is still sluggish. Caution is advised. Re-test of support from Wednesday's lows is a possibility.

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