Sunday, December 4, 2016

Sensex, Nifty charts: bulls and bears struggle for domination (Dec 02, 2016)

As per provisional figures, FIIs were net sellers of equity worth Rs 31.8 Billion while DIIs were net buyers of equity worth Rs 22.6 Billion. Both Sensex and Nifty closed 0.3% lower for the week.

India's GDP growth touched 7.3% in Q2 (Sep '16) against 7.1% in Q1 (Jun '16). However, growth in Q3 (Dec '16) is likely to be hit by the demonetisation of high value bank notes.

Many automobile manufacturers (Maruti excepted) have reported lower sales in Nov '16. Demonetisation has hit the offtake of rural two-wheelers and used cars.

BSE Sensex index chart pattern

The following was the concluding comment in last week's post on the daily bar chart pattern of Sensex: "Some more consolidation or correction can't be ruled out." 

The index rallied past its falling 20 day EMA to touch an intra-day high of 26769 on Thu. Dec 1 - falling short of its 200 day EMA. Bears struck immediately. The index closed below its 20 day EMA - forming a 'reversal day' pattern (higher high, lower close).

On Fri. Dec 2, Sensex opened with a downward 'gap' and dropped below 26200, before closing slightly higher. The index may correct a bit more and test support from the zone between 25300 and 25900.

All four daily technical indicators have corrected oversold conditions but MACD, RSI and Slow stochastic are still in bearish zones. ROC climbed into positive territory, but has reversed direction.

Expect some more correction or consolidation - atleast till the US Fed increases interest rates. A worrying sign for bulls is that both DIIs and FIIs were net sellers of equity on Fri. Dec 2. If they join hands next week, the index can touch a new low. 

NSE Nifty index chart pattern

Oversold technical indicators led to the following comment in last week's post on the weekly bar chart pattern of Nifty: "A pullback rally towards 8300 is likely. Bears will probably use the opportunity to sell."

The index touched an intra-week high of 8251 but faced strong resistance from its sliding 50 week EMA. It dropped to close slightly lower for the week - forming a 'reversal week' bar (higher high, lower close) and an 'inverted hammer' candlestick pattern.

For the past four weeks, the index has closed within the 'support-resistance zone' between 8000 and 8300. A close below 8000 can trigger a fall towards 7500-7700.

Weekly technical indicators continue to look bearish. MACD has just entered negative territory. RSI has bounced up from the edge of its oversold zone. ROC and Slow stochastic are inside their oversold zones.

Some more correction or consolidation is likely. The index is trading below its 20 week and 50 week EMAs, but well above its 200 week EMA in a long-term bull market.

Bottomline? Sensex and Nifty charts show a struggle for domination between bulls and bears. Bears have the upper hand in the near term, but bulls are far from being vanquished. Stick to your asset allocation plans and invest your savings regularly, but try to avoid any bulk buying.


jaycobb said...

There are 2 gaps on 2nd and 3rd March 2016 around 7200 - is there a chance this downtrend can fill those gaps and not stop at 7500-7700? Or some gaps can be left unfulfilled?

Subhankar said...

@jaycobb: Good questions!

Price charts don't 'like' gaps. Sooner than later, gaps get filled - either completely or partly. But sometimes, gaps can remain unfilled for months or even years.

Will the current down trend fill the gaps (between 7236 and 7406) formed on Mar 2 & 3, 2016? Your guess is as good as mine. Anything is possible when bears are on the rampage.

However, for technical reasons explained in two previous mid-week Nifty updates (on Nov 23 & 30, 2016), Nifty has formed an intermediate bottom on Nov 21, 2016. So, the probability of a fall below 7916 is low (but not zero).