Wednesday, December 28, 2016

Nifty chart: a midweek technical update (Dec 28 '16)

FIIs continue to remain bearish. Their net selling in equities during the first three trading days of the week was worth Rs 23.3 Billion. DIIs were net buyers of equity worth Rs 33.9 Billion, as per provisional figures.

Thanks to DII buying, Nifty has managed to bounce up after slipping below its previous (Nov 21) low of 7916 on Mon. Dec 26. Is the worst over for bulls?

The government now requires tax defaulters to first pay 49.9% tax and make a 25% (4 years, zero-interest) deposit to avail of the PMGKY scheme. Those already under scrutiny or prosecution will not be eligible for the scheme.

The daily bar chart pattern of Nifty touched a slightly lower bottom of 7894 on Boxing Day, but managed to close just above the psychological 7900 level. DII buying helped the index to recover some lost ground during the next two days.

The index appears to have formed a 'double bottom' reversal pattern, keeping bullish hopes alive. But looks can deceive. Technical confirmation of a 'double bottom' requires volumes to be higher during and after formation of the second bottom. However, volumes (not shown on chart) have actually been lower. 

Also, the index faced strong resistance from the falling 20 day EMA and the 8100 level during today's trading and closed near the day's low. In the process, Nifty formed a 'shooting star' candlestick pattern that often triggers a down move. 

The 'death cross' (marked by grey ellipse) of the 50 day EMA below the 200 day EMA has technically confirmed a bear market. The breadth indicator NSE TRIN (not shown) is moving up towards its oversold zone. Some correction or consolidation is likely.

Daily technical indicators have corrected oversold conditions, but remain in bearish zones. The 4 months long down trend is dominating the Nifty chart. There seems little respite for bulls in the near term. 

(It is possible that the entire trading from Nov 10 onwards has formed a large 'falling wedge' pattern from which a break out can occur upwards. No buying is recommended in such an event. Buy only if Nifty moves convincingly above its 200 day EMA.)

A convincing breach of the 7900 level can drop Nifty to the zone between 7500 and 7700. No need for bottom fishing now. Wait for Q3 (Dec '16) results to find out how badly India Inc's earnings have been hit by demonetisation.

If you are hell-bent on buying, choose only top quality stocks.   

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