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Wednesday, December 21, 2016

Nifty chart: a midweek technical update (Dec 21 '16)

FIIs have been in a strongly bearish mood, putting Nifty bulls at a severe disadvantage. Total net selling in equities by FIIs in three days of trading this week touched Rs 24 Billion. DIIs were net buyers of equity worth Rs 20.3 Billion.

Despite heavy selling by FIIs, Nifty has managed to stay above the 8000 level so far, though it has lost ground for six trading sessions in a row.

Demonetisation blues are still affecting the public at large. In another move to soften the blow, RBI has allowed depositing of demonetised notes of any amount in KYC-compliant bank accounts without asking any questions.

The Government is bringing an ordinance to amend The Payment of Wages Act, 1936 to allow businesses and industries to pay wages electronically or by cheques - with an option to pay by cash.


The following were the concluding comments in last week's mid-week update on the daily bar chart pattern of Nifty: "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."

On Thu. Dec 15, Nifty broke down and closed below the 'rising wedge' pattern. The next day it pulled back to the lower edge of the wedge - giving a selling opportunity. It has been gradually sliding down since then.

All three EMAs are falling and Nifty is trading below them. The imminent 'death cross' of the 50 day EMA below the 200 day EMA will technically confirm a return to a bear market. 

Daily technical indicators are looking bearish and showing downward momentum. Slow stochastic has dropped sharply into its oversold zone. Any technical bounce will provide bears another opportunity to sell.

Nifty's TTM P/E has remained between 21.16 and 21.87 in Dec '16, which is above Nifty's long-term average valuation. The breadth indicator NSE TRIN (not shown) is falling in neutral zone.

The Rupee is depreciating against the US Dollar. That means FIIs are going to remain sellers in the Indian stock market. "Now is the winter of our discontent (unlikely to be) made glorious summer ..." [with due apologies to William Shakespeare].

The down trend line continues to dominate Nifty's chart. Don't be in a rush to buy. Invest according to your asset allocation plan. 

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