Sunday, December 25, 2016

Sensex, Nifty charts (Dec 23, 2016): rampaging bears push bulls into a corner

As per provisional figures, FIIs were net sellers of equity worth Rs 44.8 Billion even as transaction volumes dipped by 9%. DIIs were net buyers of equity worth Rs 39.7 Billion.

On a weekly closing basis, Sensex lost 1.7% and Nifty lost 1.9%. Bulls ensured that both indices just about managed to hang on to their respective support levels (of 25900 and 8000).

The Modi Government has announced a slew of railway projects worth Rs 770 Billion for Maharashtra and road projects worth Rs 120 Billion to connect four holy shrines ('Chaar Dham') in Uttarakhand. 

In a setback to stock market participants, Modi has hinted at a possible tax on long-term capital gains in the forthcoming budget. 

BSE Sensex index chart pattern

As mentioned in last week's post, the daily bar chart pattern of Sensex broke down below the small up trend line (which turned out to be a 'rising wedge' pattern) and dropped below the support level of 25900 intra-day on Fri. Dec 23.

However, the index managed to close higher, forming a small 'reversal day' bar (lower low, higher close). The expected 'death cross' of the 50 day EMA below the 200 day EMA (marked by light blue circle) has technically confirmed a bear market.

Daily technical indicators are looking bearish. MACD has formed a small 'rounding top' pattern and crossed below its signal line in negative zone. ROC has dropped into its negative zone. RSI is below its 50% level. Slow stochastic has slipped into its oversold zone.

Any technical bounce is likely to be met with more selling, and a possible fall below the Nov 21 low of 25718.

The 4 months long down trend is going to remain in force for a while longer. FIIs may not resume buying till Q3 (Dec '16) results are announced. Neither should you.

NSE Nifty index chart pattern

The weekly bar chart pattern of Nifty dropped and closed below the support level of 8000. Technically, the support has not been breached convincingly. Why? Because the index closed within the 3% 'whipsaw' limit.

It may be a small respite for bulls. The index is trading below its 20 week and 50 week EMAs and the blue down trend line. Bears remain in control, and more correction can't be ruled out.

Weekly technical indicators are bearish and looking oversold. MACD is falling deeper into negative territory. ROC and RSI are inside their respective oversold zones. Slow stochastic is at the edge of its oversold zone.

Note that the index has closed at its lowest level in 7 months. However, ROC and Slow stochastic are showing positive divergences by not falling lower with the index.

A technical bounce is a possibility. That should not be used as a buying opportunity - unless you wish to cover what you had sold earlier at higher levels.

The market breadth indicator, NSE TRIN (not shown) is rising towards its oversold zone, hinting at some correction or consolidation. Nifty's TTM P/E has remained in a range between 21 and 22 during Dec '16 - higher than its long-term average. 

Bottomline? Sensex and Nifty charts show that bears are ruling, but bulls have managed to stand their ground. The stock market has discounted the negative fallout of demonetisation. However, introduction of a long-term capital gains tax may strengthen the hand of bears. Wait for Q3 (Dec '16) results before taking any major buy/sell decisions.

(Wishing all blog visitors, followers and newsletter subscribers a Merry Christmas and a very Happy New Year.)

1 comment:

brb said...

In my view investors must not shortbecause market may go up very sharply and thus can trap shifters.stay invested and be safe . Merry Christmas and happy new year 2017.