Wednesday, November 9, 2016

Nifty chart: a midweek technical update (Nov 09 '16)

The Indian stock market faced a double whammy today - the overnight demonetisation of Rs 500 and Rs 1000 bank notes, and an unexpected Trump victory in US Presidential elections.

Nifty opened trading with a huge downward 'gap' well below its 200 day EMA and dropped further to the 8000 level before value buying coupled with short-covering led to a recovery of most of the day's losses.

After being net buyers on the first two days of the week, FIIs were big net sellers of equity today. Their net selling for the first three days of the week touched Rs 17 Billion. DIIs were net buyers of equity worth Rs 22 Billion, as per provisional figures.

There was some good news on the economic front. Nikkei India Manufacturing PMI was at a 22 month high of 54.4 in Oct '16 against 52.1 in Sep '16. The Services PMI also increased to 54.5 in Oct '16 against 52 in Sep '16. (A figure above 50 indicates expansion.)

The daily bar chart pattern of Nifty dropped sharply below the 'flag' pattern and the 200 day EMA intra-day, but recovered dramatically to close well within the 'flag' and above its 200 day EMA in bull territory.

Technically, the 'flag' pattern remains intact because the index didn't close below it. However, the intra-day breach is a warning sign for bulls that the correction from the Sep '16 top may not be over yet.

The two upward 'gaps' - formed on Jul 11 and Jun 30 - got completely filled by today's price action. Logically, the index should resume its up move - much like it did after the intra-day BrExit crash on Jun 24.

Daily technical indicators are in bearish zones. MACD and RSI are showing downward momentum, while Slow stochastic is showing upward momentum. The index may face a bit of volatility and consolidation before it can breakout upwards from the 'flag'. 

The 'uncertainty risk factor' of the US Presidential election is behind us. But the bank note demonetisation and its likely consequences have not yet been fully discounted by the market.

Nifty's TTM P/E has slipped further to 22.48, but still remains higher than its long-term average. The breadth indicator NSE TRIN (not shown) is moving up towards its neutral zone - hinting at some consolidation or a bit more correction.

Bravehearts got an excellent opportunity to buy during today's sharp opening dip. If you missed it, don't fret. There are many opportunities in individual stocks for savvy stock-pickers. 

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