Wednesday, November 30, 2016

Worst over for Nifty bulls, but bears still rule: a mid-week technical update (Nov 30, 2016)

FIIs were net sellers of equity for the second month in a row. As per provisional figures, their net selling during Nov '16 was worth a huge Rs 199.8 Billion. DIIs were net buyers of equity worth Rs 182.8 Billion.

On a closing basis, Nifty lost 401 points (4.6%) during the month - even after it recovered 309 points from the month's low of 7916 (touched on Nov 21).

The unexpected shock of demonetisation of high-value bank notes has been discounted by the market. A combination of short-covering and value buying has triggered a recovery of sorts.

For the past three months, the daily bar chart pattern of Nifty has remained below the down trend line - showing bear domination after a strong rally from the Feb 29 low (of 6826) to the Sep 7 top (of 8969).

Time wise the index spent 3 months in correcting a 6 months long rally. Retracement level wise, the index has retraced 49% (close to the Fibonacci 50% level) of the 2143 points rally.

Note that the down trend was already two months old when the index crashed on Nov 9 - struck by a double whammy of Trump's election win in the US Presidential elections and Modi's bank-note demonetisation.

In the previous mid-week update, three technical reasons were given why Nifty was unlikely to breach the 'Support-resistance zone' between 7900-8000. The sharp pullback (of 309 points in 7 trading sessions) shows that the correction was used as a buying opportunity.

How much further can Nifty move up? Several resistances can soon put paid to the current leg of the rally. 

Nifty is facing resistance from its falling 20 day EMA. Looming overhead is the 'Support-resistance zone' between 8300-8400. The 200 day EMA is close to 8300 and the 50 day EMA is nearly at 8400.

Even if Nifty can move above 8400 - and the probability appears low unless FIIs resume buying - the down trend line at 8525 will provide strong resistance.

Daily technical indicators have corrected oversold conditions, and are showing upward momentum but remain in bearish zones. Another 1-2% up move is possible before bears resume selling. The index has closed below its three EMAs in bear territory for 13 trading sessions in a row. 

Nifty's TTM P/E has slid down from 23.31 at the beginning of the month to 21.61 today; an improvement, but still above its long-term average. The breadth indicator NSE TRIN (not shown) almost reached its oversold zone before turning down - suggesting that the rally may continue a bit longer.

Don't worry if you missed buying during the previous week's dip. Buy according to your asset allocation plan and SIP, and stay invested for the long-term.

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