Wednesday, December 14, 2016

Nifty chart: a midweek technical update (Dec 14 '16)

FIIs have turned bears once again. Their net selling in equities crossed Rs 29 Billion during the first three days of trading this week. DIIs were net buyers of equity worth only Rs 1.2 Billion. Nifty has shown remarkable resilience despite strong selling by FIIs.

CPI inflation fell to a 2 years low of 3.63% in Nov '16, against 4.2% in Oct '16 - thanks to moderation in food prices after a good monsoon. WPI inflation eased to 3.15% in Nov '16 against 3.39% in Oct '16. Shortage of cash supply after demonetisation of high-value bank notes may have contributed to lowering inflation.

With a sharp drop in imports, India's current account deficit (CAD) declined to $3.4 Billion during Jul-Sep '16 quarter, against $8.5 Billion during Jul-Sep '15. However, it was much higher than CAD of $0.3 Billion during Apr-Jun '16 quarter. 

The daily bar chart pattern of Nifty clearly shows an ongoing tussle for control between bulls and bears.

For more than 3 months, a larger down trend from the Sep 7 top of 8969 has been dominating the chart. However, after touching a low of 7916 on Nov 21, the index has been in a smaller up trend.

Ever since it closed below the 200 day EMA on Nov 11, Nifty has traded below its long-term moving average in bear territory. The 20 day EMA has crossed below the 200 day EMA, but is in the process of forming a 'rounding bottom' pattern that has raised bullish hopes.

The 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a bear market. Bulls are trying their utmost to prevent that from happening.

Daily technical indicators are looking bearish. MACD is rising above its signal line, but remains well inside its negative zone. RSI is facing strong resistance from its 50% level. Slow stochastic has dropped from its overbought zone.

Nifty's TTM P/E has remained between 21.25 and 21.87 in Dec '16, which is above Nifty's long-term average valuation. The breadth indicator NSE TRIN (not shown) is falling towards its overbought zone.

The index appears to be undecided about its next move. A rise in US interest rates has already been discounted. Rising oil prices and demonetisation of high-value bank notes have curbed bullish fervour. 

The balance is tilted towards bears continuing their domination for a while. The small up trend line may be the lower edge of a 'rising wedge' pattern, which has bearish implications.

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