Wednesday, November 2, 2016

Nifty chart: a midweek technical update (Nov 02 '16)

For the month of Oct '16, FIIs were net sellers of equity worth Rs 57.7 Billion. DIIs were net buyers of equity worth Rs 79.1 Billion, as per provisional figures. During the two days of trading this week, FIIs net sold equity worth Rs 7.9 Billion while DIIs were net buyers of equity worth Rs 6 Billion.

The spat between the recently removed Chairman and the board of directors of Tata Sons seems to be getting uglier by the day, with charges and counter-charges flying back and forth in the media. That has kept bullish sentiments depressed in the stock market.

The latest news of Trump narrowing the gap with Clinton in opinion polls about the forthcoming US elections dampened bullish sentiments even more. That caused widespread selling across global stock markets and a rush to the safe haven of gold. 

The daily bar chart pattern of Nifty continues to correct within a downward-sloping channel (called a 'flag') since the end of Aug '16. After a fifth failed attempt to breakout above the 'flag', the index fell with a downward 'gap' today but received good support from the 8500 level.

All four daily technical indicators are in bearish zones. RSI is moving sideways below its 50% level. The other three - MACD, ROC, Slow stochastic - are showing downward momentum that is hinting at some more correction.

Nifty's TTM P/E has slipped to 23.01, but remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is trying to emerge from its overbought zone.

A likely fall below 8500 can drop the index to a strong zone of support between 8300 and 8400. The lower edge of the 'flag', the upward 'gap' formed on Jul 11 '16 and the rising 200 day EMA are all within the 100 point support zone. 

The index has corrected just over 5% from its Sep 7 top, and retraced about 22% of its entire rally from the Feb '16 low to the Sep '16 top. These are less than the range of 'normal' bull market corrections (of 8-10% from the top and 30-35% retracement of previous up move).

Q2 (Sep '16) results declared so far haven't given much indication of India Inc's return to consistent earnings growth. India's efforts at imposing anti-dumping duty on Chinese steel may be challenged at the WTO by several countries.

Amidst all the bearish doom and gloom, a few companies have declared decent quarterly results and are showing sustainable growth prospects. Identifying and buying them can lead to good long-term returns. 

Patience is a key differentiator between success and failure in the stock market. Don't try to buy in a hurry or sell in a panic. Keep calm, do your homework and wait for suitable opportunities. 

The smartest move for most small investors can be investing regularly in a handful of good equity/balanced funds regardless of market movements. 

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