Sunday, December 18, 2016

Sensex, Nifty charts (Dec 16, 2016): bulls forced to yield some ground

FIIs and DIIs joined forces and turned bearish during a week when transaction volumes slipped by 3%. FIIs were net sellers of equity worth Rs 36.1 Billion, while DIIs were also net sellers of equity worth a more modest Rs 0.23 Billion.

Despite all the selling, Sensex lost only 1% on a weekly closing basis and Nifty lost 1.5%. Both indices managed to remain above their respective support levels (of 25900 and 8000).

The US Fed expectedly raised interest rate by 25 bps (0.25%), and hinted at more rate hikes during 2017 in a clear indication that the US economy is on the mend. The US Dollar strengthened against global currencies - which is not good news for emerging market economies. 

BSE Sensex index chart pattern

The daily bar chart pattern of Sensex oscillated about its 20 day EMA during the week, closing just below it. The smaller up trend within a larger down trend remained intact as the index received good support from the up trend line.

That may only be a brief respite for bulls. The 50 day EMA is on the verge of crossing below the 200 day EMA. The imminent 'death cross' will technically confirm a bear market.

Daily technical indicators are giving conflicting signals, which often happens during periods of uncertainty and consolidation. MACD is rising above its signal line in negative zone. ROC has bounced back into positive zone, but is facing resistance from its 10 day MA.

RSI and Slow stochastic are looking bearish as both are falling towards their respective 50% levels. The index has closed below the down trend line and its three EMAs in bear territory.

A downward breach of the up trend line and a test of the Nov 21 low (of 25718) may be on the cards. In case bulls are able to muster up a rally, expect strong resistance from the merged 50 day and 200 day EMAs and the down trend line.

It may be a good idea to sit on the sidelines for a while. 

NSE Nifty index chart pattern

For the 6th week in a row, the weekly bar chart pattern of Nifty closed within the 'support-resistance zone' between 8000 and 8300. The 50 week EMA provided strong resistance during the week.

The index has closed below the blue down trend line for 15 straight weeks, but remains well above its 200 week EMA in a long-term bull market.

Weekly technical indicators are bearish and looking a bit oversold. MACD is falling below its signal line in negative zone. ROC faced resistance from its falling 10 week MA and has re-entered its oversold zone. RSI has slipped into its oversold zone. Slow stochastic is hovering just above its oversold zone.

The market breadth indicator, NSE TRIN (not shown) is moving up in neutral zone, hinting at some correction or consolidation. Nifty's TTM P/E is in a range between 21 and 22 - higher than its long-term average.

Bottomline? Sensex and Nifty charts show that bears had the upper hand last week, but bulls have not yielded too much ground. The stock market is pricing in the negative fallout of demonetisation. A strong US Dollar will keep FIIs away from the Indian market. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

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